Section 264(a) disallowance refers to Internal Revenue Code provisions that limit the deductibility of certain interest and other expenses related to life insurance, endowment, or annuity contracts. In many cases, businesses cannot deduct interest on loans used to carry life insurance policies, especially when the business is a direct or indirect beneficiary. These rules aim to prevent taxpayers from deducting financing costs while enjoying tax-free death proceeds or tax-deferred build-up inside policies. Section 264(a) disallowance also interacts with rules governing key person coverage, COLI programs, split-dollar arrangements, and leveraged insurance strategies, making careful tax analysis essential for sophisticated planning.

Tax advisers and advanced planning teams review Section 264(a) disallowance whenever they evaluate business-owned life insurance financed through loans or complex premium arrangements. They model after-tax results with and without interest deductions and assess whether the strategy still meets economic and tax objectives. Advisors designing premium financing or large COLI programs coordinate closely with tax counsel to avoid structures that run afoul of Section 264(a). When explaining recommendations to clients, they clarify that interest or certain expenses may not be deductible and that projections must reflect this. Understanding Section 264(a) disallowance helps prevent overly aggressive tax assumptions and supports compliant, durable insurance designs for businesses.