Allied Chem purchases universal life insurance policies on its key executives, with the death benefit going to the spouses or family members of the executives, not the company. The company deducts the premiums paid as a business expense. However, during an IRS audit, they are fined for the deduction due to it being handled incorrectly. Below are three questions that determine the correct accounting.
Q #2 - why is the full premium not deductible?