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The remaining items proposed in the SND was [sic]
a computational change to your Schedule A limitation.
The determination of this issue will depend on the
final resolution of the annuity income issue.
Discussion
Respondent’s position is based on his receipt of a Form
1099-R from the insurance company. That Form 1099-R is not in
evidence. After some confusion, respondent now relies solely on
a theory that petitioners’ “income” is a result of policy loans
made by petitioner Mary Dyer as owner of the policy that were
satisfied when the insurance policy lapsed. Respondent’s
pretrial memorandum cites Atwood v. Commissioner, T.C. Memo.
1999-61. Atwood involved taxpayers who had borrowed against the
cash value of the insurance policies that they owned.
The crux of petitioners’ argument is that they were never
the owners of the insurance policy, that they received no loans
to pay policy premiums, that they never received any payments
from the insurance company, and that they, therefore, never
received any income. Petitioners support this argument by
pointing out that petitioner’s former law firm paid all the
premiums and purchased the policy solely for the purpose of
paying a surviving spouse for a deceased partner’s share in the
firm. This is corroborated by the letter from the insurance
company addressed to the law firm dated January 13, 2003, which
refers to the law firm as the “policyowner” of the policy and
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