Stephen L. and Colleen Atwood - Page 2




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          Rule references are to the Tax Court Rules of Practice and                  
          Procedure.                                                                  
               The issues remaining for decision are:  (1) Whether                    
          petitioners are taxable on distributions totaling $38,117 from              
          the termination of a life insurance policy and an endowment                 
          policy; (2) whether petitioners are entitled to deduct interest             
          on amounts borrowed against these two policies; and (3) whether             
          petitioners are liable for an accuracy-related penalty for a                
          substantial understatement of income tax.1                                  

                                  FINDINGS OF FACT                                    
               The parties have stipulated some of the facts, which are so            
          found.  The stipulation of facts with attached exhibits is                  
          incorporated herein by this reference.  When they petitioned the            
          Court, petitioners were married and resided in Dallas, Texas.               
               In 1986, petitioner husband purchased a single premium life            
          insurance policy from First Colony Life Insurance Co. (First                
          Colony), paying a single premium of $25,000.  On March 8, 1988,             
          petitioner wife purchased a single premium endowment policy from            
          National Western Life Insurance Co. (National Western), paying a            
          single premium of $50,000.                                                  



               1 Petitioners stipulated that they failed to report taxable            
          interest income in the amount of $26 on their 1995 joint Federal            
          income tax return.                                                          





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