Stephen L. and Colleen Atwood - Page 8




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          section 264(a)(2) nor the cited exception applies to the case at            
          hand.4   Because we have concluded that the interest in question            




               3(...continued)                                                        
               (a)  General Rule.--No deduction shall be allowed for--                
                              *    *    *    *    *    *    *                         
                    (2) Any amount paid or accrued on indebtedness incurred           
               or continued to purchase or carry a single premium life                
               insurance, endowment, or annuity contract.                             

                    (3) Except as provided in subsection (c), any amount              
               paid or accrued on indebtedness incurred or continued                  
               to purchase or carry a life insurance, endowment, or                   
               annuity contract (other than a single premium contract                 
               or a contract treated as a single premium contract)                    
               pursuant to a plan of purchase which contemplates the                  
               systematic direct or indirect borrowing of part or all                 
               of the increases in the cash value of such contract                    
               (either from the insurer or otherwise).                                
                              *    *    *    *    *    *    *                         
               (c) Exceptions.--Subsection (a)(3) shall not apply to any              
          amount paid or accrued by a person during a taxable year on                 
          indebtedness incurred or continued as part of a plan referred to            
          in subsection (a)(3)--                                                      
                              *    *    *    *    *    *    *                         
                    (3) if such amount was paid or accrued on indebtedness            
               incurred because of an unforeseen substantial loss of income           
               or unforeseen substantial increase in his financial                    
               obligations * * *.                                                     
               4  There is no evidence in the record that the loans in                
          question were “incurred or continued to purchase or carry” single           
          premium life insurance or endowment contracts, within the meaning           
          of sec. 264(a)(2).  Moreover, the exception contained in sec.               
          264(c)(3) pertains only to plans referred to in sec. 264(a)(3),             
          which specifically excludes single premium contracts.                       




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