Antim G. and Jane V. Straus - Page 3




                                         -2-                                          
          the year in issue, and all Rule references are to the Tax Court             
          Rules of Practice and Procedure.                                            
               Respondent determined a deficiency in petitioners’ Federal             
          income tax for the year 2003 in the amount of $5,879, and an                
          accuracy-related penalty of $1,176 under section 6662.  The                 
          issues for decision are whether the distributions of the cash               
          value of a whole life insurance policy and interest in 2003 are             
          taxable to petitioners, and whether petitioners are liable for              
          the accuracy-related penalty under section 6662 arising from a              
          substantial understatement of tax for that year.                            
                                     Background                                       
               The stipulation of facts and the attached exhibits are                 
          incorporated herein by reference.  At the time the petition was             
          filed, petitioners resided in Springfield, Missouri.                        
               When Katherine Straus, petitioners’ daughter, was 3 years              
          old, petitioners purchased a whole life insurance policy (policy)           
          from Northwestern Mutual Life Insurance Company (Northwestern               
          Mutual) which insured Katherine.  Petitioners were listed as the            
          sole owners on the policy.  Annual premiums on the policy were              
          approximately $1,000.  Petitioners purchased the policy for the             
          purpose of covering educational costs for Katherine if and when             
          she decided to pursue a college degree.  Katherine graduated from           
          high school in 2000, and thereafter enrolled at Southwest                   








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