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The distribution at issue resulted from petitioner’s
surrender of the policy. As stated earlier, section 72(e)(5)
applies to the surrender of a life insurance contract. See sec.
72(e)(5)(E). In contrast, section 72(e)(3) applies only to the
computation of annuities under section 72(e)(2)(B). In fact,
section 72(e)(5)(A) specifically provides that section
72(e)(2)(B) shall not apply. Consequently, the computation under
section 72(e)(3)(A) is not applicable.
For the reasons stated herein, we hold that petitioners
received a taxable distribution of $8,944 resulting from
petitioner’s surrender of the policy. Accordingly, we sustain
respondent’s determination.
Conclusion
We have considered all of the other arguments made by
petitioners, and, to the extent that we have not specifically
addressed them, we conclude they are without merit.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be
entered for respondent.
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Last modified: May 25, 2011