Dona Elizabeth Conway - Page 7

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          the home after 1986 for which petitioner produced what respondent           
          regarded as adequate documentation.1                                        
               On brief, respondent conceded that $9,000 of the $10,000               
          petitioner paid as a consulting fee is deductible as a                      
          miscellaneous itemized deduction.                                           

          Exchange of Portion of Annuity Contract                                     
               Under section 72(e)(2)(B)(i), amounts received under an                
          annuity contract prior to the date on which annuity payments are            
          to begin are to be included in gross income to the extent                   
          allocable to income earned on the annuity contract.                         
               Under section 1035(a)(3), however, gains or losses are not             
          to be recognized where an annuity contract is exchanged for                 
          another annuity contract.  Section 1035(a)(3) provides as                   

               SEC. 1035.  CERTAIN EXCHANGES OF INSURANCE POLICIES.                   
                    (a) General Rules.--No gain or loss shall be                      
               recognized on the exchange of--                                        
               *       *       *       *       *       *       *                      
                         (3) an annuity contract for an annuity                       

          1    Respondent also allowed a $36,930 adjustment to the selling            
          price of the home to reflect a real estate sales commission that            
          petitioner paid.                                                            

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