- 11 -
purchase a life insurance policy from Royal under circumstances
more or less identical to those involved in this case. In that
case we described Stable as the Schwabs' "straw entity" and
referred to the taxpayers' note to Stable as "illusory". We
found that the taxpayers were enriched to the extent that they
received the benefit of a year's worth of life insurance coverage
at no cost, and relying upon Wentz v. Commissioner, supra, and
Woodbury v. United States, supra, held that they realized taxable
income to the extent of the first-year premium attributable to
the life insurance policy there involved.
Although the parties disagree on various points in this
case, the critical dispute between them focuses upon the bona
fides of the indebtedness represented by the notes signed by
petitioners. Petitioners claim that the notes were in all
respects valid, although they concede that the underlying debts
represented by the notes became uncollectible when the related
insurance policies lapsed. Respondent, relying upon Haderlie v.
Commissioner, supra, argues that the notes were illusory.
According to respondent, there was no valid indebtedness between
the holders and either petitioner.
We agree with respondent, particularly with respect to the
DDI note. At the time that the DDI note was executed Charles
Sutter had no intention to repay the indebtedness it represented,
and the Waltons had no intention to collect from Charles Sutter.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011