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IRS answers: new guidance on life insurance settlements.

Publication: California CPA
Publication Date: 01-JUN-09
Format: Online
Delivery: Immediate Online Access

Article Excerpt
Rev. Rul. 2009-13 (IRB 2009-21, May 26, 2009) answers this question: What income is recognized upon the surrender or sale of the life insurance contracts described in the three situations below?

[ILLUSTRATION OMITTED]

Situation 1

Facts: On Jan. 1, Year 1, individual A entered in a life insurance contract with cash value. A was the insured and his relative the beneficiary. A had the right to change the beneficiary, take out a policy loan or surrender the contract for its cash surrender value (CSV). The contract in A's hands was not property excluded from the definition of a capital asset [under IRC Sec. 1221 (a)(1)-(8)].

On June 15, Year 8, A surrendered the contract for its $78,000...

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