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beneficiary.3 During the year in issue, petitioners wholly owned
the policy.
Sometime in 2000, petitioners surrendered the policy and
received a total distribution in the amount of $33,850. For the
taxable year 2000, Transamerica Occidental Life Insurance Co.
(Transamerica)4 sent petitioners a Form 1099-R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., reporting a gross distribution
of $33,850 and a taxable distribution of $12,213. Petitioners
disputed the computation by Transamerica of the taxable gain and
requested the company to reexamine the amount of premiums paid
towards the policy. Transamerica recalculated the cost basis of
the policy and sent petitioners a letter explaining the cost
basis determination as follows:
The total dividends earned over the life of the policy
are deducted from the total premiums [$50,570.50] to
arrive at the cost basis. The total dividends were
$26,481.00. So, the net cost is $24,089.50.
Transamerica then issued to petitioners a corrected Form 1099-R
for 2000 reporting the following:
3 A complete copy of the policy is not in the record, but
the evidence indicates that the policy provided for annual
dividends, premiums payable during life of insured, and face
amount payable at death of insured.
4 At some point in time, Occidental Life Insurance Co. of
California merged with Transamerica Life Insurance Co.
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Last modified: May 25, 2011