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Respondent determined for 1999 a deficiency in petitioner’s
Federal income tax of $658. The issue for decision is whether
$2,326.33 of interest distributed to petitioner from the
Prudential Life Insurance Company is taxable as income to
petitioner.
Background
The stipulation of facts and the exhibits received into
evidence are incorporated herein by reference. Petitioner
resided in Warren, Michigan, at the time the petition in this
case was filed.
In 1985, petitioner purchased a "variable/appreciable
policy" (VAP) from the Prudential Life Insurance Company
(Prudential). Petitioner believed it was an investment vehicle
through which he could fund his retirement. At the time he
purchased the VAP, petitioner also had an existing life insurance
policy with Prudential. Petitioner agreed to have the premiums
for the VAP paid through loans against the cash value of his
existing life insurance policy and from investment earnings
derived from the VAP.
The VAP premiums, totaling $4,647.83, were paid by loans
taken from the cash value of the life insurance policy. By 1987,
the cash value of the life insurance policy had been borrowed in
full. Petitioner was unemployed and unable to pay the premiums
on the VAP which caused the policy to lapse.
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