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(d) * * * interest on life insurance. * * * Where
accrued interest on unwithdrawn insurance policy divi-
dends is credited annually and is subject to withdrawal
annually by the taxpayer, such interest credits consti-
tute gross income to such taxpayer as of the year of
credit. However, if under the terms of the insurance
policy the interest on unwithdrawn policy dividends is
subject to withdrawal only on the anniversary date of
the policy (or some other date specified therein), then
such interest shall constitute gross income to the
taxpayer for the taxable year in which such anniversary
date (or other specified date) falls.
As pertinent here, regulations under section 451 provide:
§ 1.451-2. Constructive receipts of income.--
(a) General rule. Income although not actually reduced
to a taxpayer’s possession is constructively received
by him in the taxable year during which it is credited
to his account, set apart for him, or otherwise made
available so that he may draw upon it at any time, or
so that he could have drawn upon it during the taxable
year if notice of intention to withdraw had been given.
However, income is not constructively received if the
taxpayer’s control of its receipt is subject to sub-
stantial limitations or restrictions. * * * In the case
of interest, dividends, or other earnings (whether or
not credited) payable in respect of any deposit or
account in a bank, building and loan association,
savings and loan association, or similar institution,
the following are not substantial limitations or re-
strictions on the taxpayer’s control over the receipt
of such earnings:
* * * * * * *
(3) A requirement that the earnings may be with-
drawn only upon a withdrawal of all or part of the
deposit or account. * * *
* * * * * * *
(b) Examples of constructive receipt. * * * Accrued
interest on unwithdrawn insurance policy dividends is
gross income to the taxpayer for the first taxable year
during which such interest may be withdrawn by him.
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Last modified: November 10, 2007