1) If an S corporation owns a $400,000 life insurance policy on the life of a 50% shareholder, at the death of the shareholder the $400,000 death benefit:

a. May be subject to the ACE adjustment of the corporate alternative minimum tax.

b. Will be subject to a mandatory income tax withholding rate of 20% unless rolled over into an IRA within 60 days.

c. Is considered income tax free to the corporation under Code section 101(a).

d. Must be contributed to the deceased shareholder's defined contribution plan subject to the maximum limits of Code section 415.