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contract with $119,000, retained $10,000 from the $119,000 as a
"surrender charge", issued a check in the amount of $109,000 in
favor of Equitable, and mailed the check directly to Equitable.
Upon receipt of the $109,000 check from Fortis and upon
simultaneous receipt of petitioner's application to purchase the
Equitable annuity contract, Equitable opened an annuity contract
in favor of petitioner with a principal amount invested of
$109,000. The record does not indicate when payments under the
Equitable annuity contract were to begin, but the terms and
provisions of the annuity contracts are treated by the parties as
substantially equivalent.
On the application form for purchase of the Equitable
annuity contract that petitioner filled out and submitted to
representatives of Equitable, petitioner expressly indicated that
withdrawal of the funds from the Fortis annuity contract and
transfer of the funds to Equitable for purchase of another
annuity contract were to be treated as a section 1035 nontaxable
exchange.
In 1994, Fortis mailed to petitioner and to respondent a
Form 1099-R (Distributions From Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRA's, Insurance Contracts, etc.)
indicating that the above transaction was taxable and that
$30,535 of the $119,000 withdrawn from petitioner’s Fortis
annuity contract represented taxable income to petitioner.
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Last modified: May 25, 2011