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totaled $384 (i.e., $23,509 less $23,125), which petitioner
received in cash.
For the taxable year 2001, Pacific Life issued a Form 1099-
R, Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc., reporting a gross
distribution of $23,509 and a taxable distribution of $8,944.
Pacific Life computed the taxable distribution as the accumulated
value of $23,509 less petitioner’s investment in the policy of
$14,565.
Petitioners did not report the distribution of $8,944 on
their 2001 Federal income tax return. Respondent determined that
petitioners received gross income of $8,944 from the surrender of
the policy.
Petitioners timely filed with the Court a petition
challenging respondent’s determination. Paragraph 4 of the
petition states, in part:
I took out most of the cash surrender value of this
policy in 1993-94 totaling $14,400 as down payment on a
home. I made no payments, nor did I receive any money
from this account until 2001 when I received $384
remaining cash value to allow the policy to lapse.
Total distributions=$14,784. The reported $8,945 was
kept by Pacific Life in fees and charges and never
distributed to us. (Note: The insurance load was paid
by interest earned on my premium; during the 13 years
the policy was in force it totaled~$3,276. If this
value is taxable, we would happily pay any tax due on
it.)
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Last modified: May 25, 2011