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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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Last modified: May 25, 2011