Verl W. and Frances M. Haderlie - Page 7

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          taxable in the year of the transaction in the amount of the                 
          premium that had been paid and kicked back.                                 
               Respondent relies on those cases, arguing that the record in           
          this case contains no distinction(s) to cause a result different            
          from the prior cases.  Petitioners, who are pro se, argue that              
          they should not have to recognize income because of the following           
          theories:  (1) The "market value was nothing because * * *                  
          [Royal] was not legal in Idaho and neither was * * * [Schwab]”.             
          (2) Royal was aware of Schwab's illegal rebating scheme and did             
          nothing because it would have had to pay back the premiums to the           
          insured, and it was easier for Royal to "let it ride out than pay           
          back all of the premiums."  We agree with respondent.                       
               Petitioners' arguments are based on illegality as the reason           
          why they should not be required to recognize income from the                
          insurance transaction.  Initially, we note that Royal (insurance            
          company) was licensed in Idaho, and Schwab (agent) was not                  
          licensed in Idaho.  Petitioners contend that due to either the              
          illegality of rebating and/or the fact that Schwab was not                  
          licensed to sell insurance in Idaho, the insurance coverage had             
          no value.  We surmise that petitioners are arguing that the                 
          illegality would have provided Royal with a defense to paying               
          benefits on the policy in the event that petitioner died while              
          the policy was in force.  State law and evidence in the record do           
          not present a defense that Royal could have interposed to a claim           

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