Case: U.S. Tax Court Finds Taxpayer Liable for Actual, Constructive Income on Terminated Insurance Policies (T.C. Summ.)

The U.S. Tax Court found the taxpayer liable for income tax on distributions from terminated life insurance policies. The taxpayer purchased two whole life insurance policies on his children’s lives and later borrowed lump sums from the policies, and borrowed additional amounts to cover annual premium payments. In 2018 the taxpayer terminated both policies and received a Form 1099-R showing gross distributions reflecting cash paid and outstanding policy loan balances, and taxable amounts. The taxpayer failed to report the taxable amounts and was issued a notice of deficiency and an accuracy related penalty. The Tax Court rejected the taxpayer’s contentions …