U.S. Tax Court Rules Life Insurance Policy Termination Results in Taxable Income for Business Owner

The U.S. Tax Court held that a taxpayer constructively received taxable income from a life insurance policy termination despite the proceeds being used to satisfy outstanding loans because he retained ownership of the policy throughout, granting in part the Commissioner’s deficiency determination. Taxpayer, an individual who owned a family printing business, purchased a life insurance policy and periodically borrowed against its cash value to pay premiums and business expenses, including an $80,000 loan that was deposited into his business account. When the combined loan balances exceeded the policy’s cash surrender value in 2015, the insurer automatically terminated the policy and ...