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As in the case of the Royal policy, the Columbus life
insurance policies were assigned to either RMR or DDI, as
appropriate, but the assignment documents were never forwarded to
Columbus. The fair market values of the insurance coverage that
petitioners received from the Columbus policies in 1992 equaled
the amount of the first-year premiums on the policies.
OPINION
Transactions similar to the ones described above were first
considered by this Court in Wentz v. Commissioner, 105 T.C. 1
(1995), and by other Federal courts in Woodbury v. United States,
72 AFTR 2d 93-6140, 93-2 USTC par. 50,528 (D.N.D. 1993), affd.
per curiam without published opinion 27 F.3d 572 (8th Cir. 1994).
In those cases the taxpayers argued: (1) The transactions did
not result in taxable income, but rather only reduced the cost of
the life insurance through rebates (this argument was rejected in
those cases and was not advanced by petitioners in this case);
and (2) to the extent that the transactions did result in taxable
income, the measure of income should be the fair market value of
term life insurance that would have provided the same death
benefit. The Commissioner argued that the fair market value
should be measured by the first-year premiums paid for the type
of life insurance involved. In those cases, the courts agreed
with the Commissioner.
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