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three instances where the insurance was purchased directly from
Peoples Security, in the year that Lakewood paid Peoples Security
for that insurance. Petitioners assert that the income is not
taxable to the employee/owners until after the subject years
because the conversion credit balance would be forfeited if the
underlying policy lapsed or if the insured died. Petitioners
observe that the employee/owners’ ability to withdraw the
conversion credit balance was limited to the percentage of that
balance that was transferred to the C-group conversion UL policy.
Petitioners observe that the transferred credits could be reached
by an insured only if a C-group term policy was converted to a C-
group conversion UL policy, and then only in equal increments
over 120 months. Petitioners observe that an insured would
forfeit the transferred credits in the event of his or her death.
Petitioners rely primarily on section 83(a).
Respondent argues that the income is taxable currently.
Respondent asserts that the excess contributions purchased
insurance contracts and annuities for the benefit of the
employee/owners. Respondent asserts that the employee/owners had
the unfettered ability to withdraw the conversion credit balances
at their whim.
We agree with respondent that the dividends are taxable in
the years that he determined. As mentioned supra, we view
Neonatology and Lakewood’s excess contributions to their plans as
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