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loans, petitioner was not barred from taking such deductions
prior to 1996.
Section 264(a)(3) generally provides that no deduction is
allowed for amounts paid or accrued on indebtedness incurred to
purchase a life insurance contract if such debt was incurred
pursuant to a plan of purchase which contemplates the systematic
borrowing of increases in the cash value of the insurance
contract. Section 264(c)(1) provides an exception to the general
rule under section 264(a)(3). Section 264(c)(1) provides that if
no part of any four annual premiums due in the first 7-year
period of an insurance contract is financed by means of
indebtedness, then the general rule of section 264(a)(3) will not
apply.47
47In pertinent part, sec. 264(a) provides:
SEC. 264(a) General Rule.--No deduction shall be
allowed for--
* * * * * * *
(3) Except as provided in subsection
(c), any amount paid or accrued on
indebtedness incurred or continued to
purchase or carry a life insurance,
endowment, or annuity contract (other than a
single premium contract or a contract treated
as a single premium contract) pursuant to a
plan of purchase which contemplates the
systematic direct or indirect borrowing of
part or all of the increases in the cash
value of such contract (either from the
insurer or otherwise).
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