Dona Elizabeth Conway - Page 8

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               Under regulations promulgated under section 1035, in order             
          for an exchange to qualify for nonrecognition treatment, it is              
          required only that the contracts be of the same type, e.g., an              
          annuity for an annuity and that the obligee under the two                   
          contracts be the same person.  No other requirements are set                
          forth in the applicable regulations.  Section 1.1035-1(c), Income           
          Tax Regs., provides, in part, as follows:                                   

                    Sec. 1.1035-1.  Certain exchanges of insurance                    
               policies.--Under the provisions of section 1035 no gain or             
               loss is recognized on the exchange of:                                 
               *       *       *       *       *       *       *                      
                         (c) An annuity contract for another annuity                  
                    contract (section 1035(a)(3)),                                    
               but section 1035 does not apply to such exchanges if the               
               policies exchanged do not relate to the same insured.  The             
               exchange, without recognition of gain or loss, of an annuity           
               contract for another annuity contract under section                    
               1035(a)(3) is limited to cases where the same person or                
               persons are the obligee or obligees under the contract                 
               received in exchange as under the original contract. * * *             

               Respondent argues that because the entire Fortis annuity               
          contract was not replaced by the Equitable annuity contract,                
          petitioner's withdrawal of $119,000 from the Fortis annuity                 
          contract does not qualify as a nontaxable exchange under section            
          1035 and is taxable to the extent of $30,535, the portion of the            
          withdrawal allocable to income.                                             
               Petitioner argues that because Fortis did not distribute any           
          funds to her personally but rather transferred the funds directly           

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