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OPINION
Petitioners asserted in their petition that the $500,000 of
income and the $527,004 of legal fees were properly reported on
their 1999 Schedule C. Petitioners abandoned those assertions at
trial, asserting instead that petitioner received the $500,000
from Pacific Bank on a sale of the Crown life policy by
petitioner to Pacific Bank. As petitioners now see it, the
$500,000, less their basis in the policy, is taxable to them as a
capital gain. Petitioners argue that their basis in the Crown
life policy equaled the amount of the premiums that were taxed to
them. Petitioners assert that $181,348.33 of the $500,000 was
paid to them for the cash value of the Crown life policy, and the
balance, $318,651.67, was paid to them for the policy’s other
attributes.
The credible evidence in the record does not allow us to
find that petitioners had any basis in the Crown life policy,
e.g., we are unable to find that petitioners paid any of the
premiums on the policy or included in their gross income any of
the premiums. Nor does the credible evidence allow us to find
that the policy had any particular cash value. Thus, the issue
that remains is whether the $500,000 received by petitioners is
taxable as ordinary income or as a capital gain. Respondent
observes that petitioners received the $500,000 in settlement of
their claim to ownership of the Crown life policy, that the
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Last modified: November 10, 2007