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beneficiary, Ms. Sobo, received upon his death only the face
value of the two C-group term policies which were then
outstanding on his life. Neither she nor anyone else was
entitled to, or actually received, the conversion credit balance
on either policy. For the reasons stated immediately above, we
do not believe that this “forfeiture” provision changes the fact
that the amount credited to the conversion credit balance was
simply a deposit that could either grow with interest, or, in the
case of Dr. Sobo, dissipate, and that this deposit was
insufficiently related to the current life insurance protection
to label it as such.30
We conclude that the excess contributions are disguised
(constructive) distributions to the petitioning employee/owners
of Neonatology and Lakewood, see Mazzocchi Bus Co., Inc. v.
Commissioner, 14 F.3d 923, 927-928 (3d Cir. 1994), affg. T.C.
Memo. 1993-43; Commissioner v. Makransky, 321 F.2d 598, 601-603
(3d Cir. 1963), affg. 36 T.C. 446 (1961); Truesdell v.
Commissioner, 89 T.C. 1280 (1989); see also Old Colony Trust Co.
v. Commissioner, 279 U.S. 716 (1929) (individual taxpayer
constructively received income to the extent corporate employer
agreed to pay his tax bill), which means, in turn, that the
30 Neither party has suggested that Dr. Sobo, upon death, is
entitled to deduct a loss equal to the conversion credit balance,
and we do not decide that issue.
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