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Per Revenue Ruling 2008-42, premiums paid by the S Corporation on an employer-owned life insurance contract, which it owns and is a beneficiary of, do not reduce the S Corporation's Accumulated Adjustment Account (AAA).

Although the Revenue Ruling does not explain its reasoning, it would seem that even though no deduction is allowed for premiums paid on any life insurance policy where the taxpayer is directly or indirectly the beneficiary, the nondeductible expense does not reduce the S Corporation's AAA because it is related to tax-exempt income. Therefore, UltraTax CS transfers amounts entered in the Officer life insurance premiums fields (Screen Ms, located under the Balance folder) to the OAA - Other reductions.

If you do not want officer life insurance premiums to transfer to the Other Adjustment Account, enter the amount in the Book expenses not deducted statement dialog, located on Screen Ms under the Balance folder, and enter the desired code in the Schedule M-2 column.

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