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This policy was never considered an investment. It has
NEVER been referred to as a “pension or annuity”.[8]
Petitioners have set forth no plausible legal theory to
support their argument that the distribution in issue is
nontaxable. Although it is true that as a general rule, proceeds
of life insurance contracts paid by reason of the death of the
insured are excludable from gross income, see sec. 101(a)(1), the
proceeds of the contract in issue were not paid by reason of Mr.
Jensen’s death, but rather because of the surrender of that
policy. Moreover, petitioners’ reliance on a statement from the
Department of Veterans Affairs is misplaced because such
statement does not apply to the policy in this case (No. 264261),
and, further, the distribution in issue was not a payment of
insurance dividends,9 nor was it a payment from the Department of
Veterans Affairs.10
8 Petitioners disagree with respondent’s characterization
that the distribution is from a pension or annuity. The fact
that respondent erroneously characterizes the distribution as
from a pension or annuity has no bearing on the resolution of the
issue in this case. Clearly, the distribution resulted from
petitioners’ surrender of the policy.
9 Insurance “dividends”, in general, “may be excluded from
income as a reduction of premium, at the time of the periodic
payment of premiums”. Estate of Wong Wing Non v. Commissioner,
18 T.C. 205, 209 (1952).
10 Generally, payments of benefits due under any law
administered by the Department of Veterans Affairs are exempt
from taxation. See 38 U.S.C sec. 5301(a)(1) (Supp. III 2003).
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Last modified: May 25, 2011