Dona Elizabeth Conway - Page 9

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          to Equitable and because she gave up a portion of her Fortis                
          annuity contract solely in exchange for the new Equitable annuity           
          contract, the transaction should qualify as a nontaxable exchange           
          of annuity contracts under section 1035.                                    
               We agree with petitioner.                                              
               Neither section 1035 nor the regulations condition                     
          nonrecognition treatment upon the exchange of an entire annuity             
          contract.  Respondent cites no authority to support respondent's            
          position that nonrecognition treatment under section 1035 is                
          limited to exchanges involving replacement of entire annuity                
          contracts.  Neither the statute nor the regulations contain any             
          such requirement, either expressly or by any necessary                      
               Petitioner expressly indicated on her application with                 
          Equitable that the Equitable annuity contract was being acquired            
          as part of a section 1035 exchange, and Fortis transferred the              
          $109,000 directly to Equitable.  No funds were distributed to               
               The legislative history under section 1035 states that                 
          section 1035 was enacted to provide nonrecognition treatment for            
          taxpayers "who have merely exchanged one * * * [annuity contract]           
          for another better suited to their needs and who have not                   
          actually realized gain."  H. Rept. 1337, 83d Cong., 2d Sess. 81             
          (1954).  The funds withdrawn from the Fortis annuity contract               

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