§1035 — Certain exchanges of insurance policies
14 cases·2 followed·5 distinguished·1 overruled·6 cited—14% support
Statute Text — 26 U.S.C. §1035
No gain or loss shall be recognized on the exchange of—
a contract of life insurance for another contract of life insurance or for an endowment or annuity contract or for a qualified long-term care insurance contract;
a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) for an annuity contract, or (C) for a qualified long-term care insurance contract;
an annuity contract for an annuity contract or for a qualified long-term care insurance contract; or
a qualified long-term care insurance contract for a qualified long-term care insurance contract.
For the purpose of this section—
A contract of endowment insurance is a contract with an insurance company which depends in part on the life expectancy of the insured, but which may be payable in full in a single payment during his life.
An annuity contract is a contract to which paragraph (1) applies but which may be payable during the life of the annuitant only in installments. For purposes of the preceding sentence, a contract shall not fail to be treated as an annuity contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract.
A contract of life insurance is a contract to which paragraph (1) applies but which is not ordinarily payable in full during the life of the insured. For purposes of the preceding sentence, a contract shall not fail to be treated as a life insurance contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract.
To the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person.
For rules relating to recognition of gain or loss where an exchange is not solely in kind, see subsections (b) and (c) of section 1031.
For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.1035-1 Certain exchanges of insurance policies
- Treas. Reg. §Treas. Reg. §1.1035-1(a) §1.1035-1(a)
- Treas. Reg. §Treas. Reg. §1.1035-1(b) §1.1035-1(b)
- Treas. Reg. §Treas. Reg. §1.1035-1(c) An annuity contract for another annuity contract (section 1035(a)(3)), but section 1035 does not apply to such exchanges if the policies exchanged to not relate to the same insured.
14 Citing Cases
1035 is inapplicable because there was no exchange ofpolicies.
8889 pursuant to section 1035, resulting in sa single, $6 million policy on petitioner's life.
- 8 - Under regulations promulgated under section 1035, in order for an exchange to qualify for nonrecognition treatment, it is required only that the contracts be of the same type, e.g., an annuity for an annuity and that the obligee under the two contracts be the same person. No other requirements are set forth in the applicable regulations. Section 1.1035-1(c), Income Tax Regs., provides, in part, as follows: Sec. 1.1035-1. Certain exchanges of insurance policies.--Under the provisions of sec
Rules of Practice and Procedure. After settlement of some issues, the primary issue for decision is whether direct transfer of a portion of funds invested in an annuity contract into another annuity contract qualifies as a nontaxable exchange under section 1035. FINDINGS OF FACT Some of the facts have been stipulated and are so found. When the petition was filed, petitioner resided in Minneapolis, Minnesota. Exchange of Portion of Annuity Contract In 1992, petitioner purchased from Fortis Benefi
at that time was $794,493, reflect- ing petitioners' investment of$574,954 ($228,800 + $346,154) and $219,539 in accrued earnings. Because Allstate passed the proceeds directlyto ING, this transfer qualified as a nontaxable like-kind exchange under section 1035. Petitioners thus retained the same principal and accrued earnings amounts in the ING annuity, which had an annuity starting date ofFebruary 3, 2047. On November 16, 2010, petitioners withdrew $525,000 from the ING annu- ity to fund the
(Acadia), variable life insurance policy (Acadia policy) qualified for nonrecognition treatment under section 1035; (6) whether petitioners Wegbreit are liable for excise tax on excess individual retirement account (IRA) contributions under section 4973(a) and additions to tax under section 6651(a)(1) and (2) for 2007 through 2009; and (7) whether petitioners Wegbreit are each liable for fraud penalties under section - 4 - [*4] 6663 for 2005 throu
(Acadia), variable life insurance policy (Acadia policy) qualified for nonrecognition treatment under section 1035; (6) whether petitioners Wegbreit are liable for excise tax on excess individual retirement account (IRA) contributions under section 4973(a) and additions to tax under section 6651(a)(1) and (2) for 2007 through 2009; and (7) whether petitioners Wegbreit are each liable for fraud penalties under section - 4 - [*4] 6663 for 2005 throu
In section 1035, however,. Congress provided for nonrecognition of income when a taxpayer exchanges one annuity contract for another annuity contract . Petitioner testified that his understanding was that he had 60 days to reinvest the funds and that so long as the funds .were not expended, there should be .no,penalty imposed . Petitioner' s argument