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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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Last modified: May 25, 2011