Corporate owed life insurance on a shareholder

[allanhemmer]

I have a form 1120 corporate client, where the corporation is the owner of a life insurance policy on the shareholder. The shareholder has died and the corporation has received the life insurance proceeds.

The life insurance premiums have been paid by the corporation and booked as an asset on the balance sheet. The balance of the balance sheet account for the life insurance premiums is $100,000 and the life insurance proceeds are approximately $110,000. Two questions:
1) Are the life insurance proceeds not taxable?
2) How do I report the $10,000 difference (insurance proceeds of $110,000 minus premiums of $100,000), does this get reported on schedule M-1 line 7?

Thank you

[TAXNJ]

to start:

See The Tax Book 31-10
...Key person life insurance. Many business owners are required to sign personal guarantees to secure business debt. In the event of an owner’s death, these debts will remain and, if unpaid by the business, will become the responsibility of the owner’s heirs.....

&

Employer-owned life insurance contracts.
For certain employer owned life insurance contracts issued after August 17, 2006, the amount of death benefits excluded from income shall not exceed an amount equal to the sum of the premiums and other amounts paid by the policyholder for the contract. [IRC §101(j)(1)


also, do a search on the website for this issue. It has been addressed many times