William Ivan Doty and Sandra Ann Doty - Page 4

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          respect to the five surrendered life insurance policies.                    
               Petitioners did not report the distributions of $8,786 from            
          Northwestern on their 1998 Federal income tax return.  Respondent           
          determined that petitioners received gross income of $8,786 from            
          the surrender of the five life insurance policies.                          
               In general, the Commissioner’s determinations are presumed             
          correct, and the taxpayer bears the burden of proving otherwise.            
          Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933).                       
          Petitioners do not argue the applicability of section 7491(a),              
          and the record reflects that section 7491(a) does not apply.                
               With exceptions not applicable in this case, in general any            
          amount which is received under a life insurance contract before             
          the annuity starting date, and which is not received as an                  
          annuity is included in gross income to the extent it exceeds the            
          investment in the contract.  Sec. 72(e)(1)(A), (C).  This                   
          includes any amount received under a contract on its complete               
          surrender.  Sec. 72(e)(5)(E)(ii).  The investment in the contract           
          is defined generally as the aggregate amount of premiums or other           
          consideration paid for the contract less amounts previously                 
          received under the contract, to the extent they were excludable             
          from gross income.  Sec. 72(e)(6).                                          
               Petitioners admit that the proceeds from the surrender of              
          the five life insurance policies are taxable.  Petitioners                  
          contest the computation by Northwestern of the taxable gain from            






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