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Based on the entirety of the record, there is no evidence, other
than petitioner’s self-serving testimony, that the distributions
were anything other than loans under the terms of the policy.
For Federal income tax purposes, petitioner’s policy loans
constituted bona fide indebtedness rather than a withdrawal of
his investment. See Atwood v. Commissioner, T.C. Memo. 1999-61.
Next, petitioners argue that Pacific Life’s internal loan
classification created a “fictitious tax liability”. Under
petitioners’ reasoning, petitioner withdrew the corpus of his
investment, which should have reduced the accumulated value, but
because Pacific Life classified the distributions as loans for
internal bookkeeping purposes, the accumulated value was
artificially inflated and subsequent interest earned was computed
on the basis of the inflated accumulated value. With respect to
the interest accruing on the inflated accumulated value,
petitioner argues that the interest of $8,944 credited to his
account is not taxable to him because he did not actually receive
it. Petitioner claims that he received only $15,881 in actual
cash payments and that Pacific Life kept the $8,944 to pay fees
and charges associated with the policy. We disagree.
There is no evidence in the record that Pacific Life
classified the distributions as loans solely for internal
accounting purposes. As stated earlier, the distributions at
issue were policy loans. Petitioner did not assume any personal
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