- 11 - funds are still invested in annuity contracts (less the surrender fee), except that now petitioner owns two annuity contracts. Petitioner's funds (less the $10,000 surrender charge) remain invested in a similar annuity contract, and petitioner has not personally received use or benefit of these funds since they were originally invested in the Fortis annuity contract in 1992. We conclude that petitioner's direct exchange of a portion of her Fortis annuity contract for a new Equitable annuity contract qualifies under section 1035 and that no gain to petitioner is to be recognized by reason of the exchange.3 Because the transaction qualifies as a nontaxable exchange, petitioner is not liable for the 10-percent penalty under section 72(q) on any portion of the $119,000 withdrawal. Tax Basis in Petitioner's Home In determining gain or loss on the sale of property, the cost basis of the property is adjusted by capital improvements made to such property. Secs. 1001, 1012, 1016. Generally, taxpayers bear the burden of proving entitlement to costs and deductions claimed. Bennett Paper Corp. & 3 In Rev. Rul. 90-24, 1990-1 C.B. 97, involving annuity contracts issued under sec. 403(b), a portion of funds invested in one annuity contract is transferred directly to another similar annuity contract, and the transfer is treated as nontaxable. In Rev. Proc. 92-44, 1992-1 C.B. 875, under certain specified situations, partial cash distributions to taxpayers from annuity contracts are treated as nontaxable to the extent reinvested in similar annuity contracts.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011