Collateral Split Dollar Life Insurance Plan What to do when company goes out of business?

[caryn22359]

I have a client who has a C corporation- He did a split dollar life insurance collateral assignment- He assigned his whole life insurance to the C corp. The corp. pays the premiums and he personally pays the PS 58 costs. On the corporation books is the cost ( premiums paid) . If he decides to cash in the policy, he will have a taxable gain personally, because he stills owns the policy.He is now going out of business and I want to close out the corporation, what happens to the cost of the insurance on the books? Does he need to repay the cost of the premiums? He is the only employee and shareholder in the company.
Thank you. 

[Luke Bailey]

The cash value of the policies up to premiums paid is part of the C corporation's assets  and will have same tax consequences in liquidation as would any other asset. If they tear up the collateral assignment, presumably that is compensation or a distribution of liquidation proceeds to the owner. They need to talk to the CPA or tax lawyer handling the liquidation.