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Discussion:Veterans Matured Endowment Contract

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Discussion Forum Index --> Basic Tax Questions --> Veterans Matured Endowment Contract


Discussion Forum Index --> Tax Questions --> Veterans Matured Endowment Contract

Jimbocpa (talk|edits) said:

10 March 2012
I have a 96 year old client that received a $66,500 payment from the Department of Veterans Affairs with an explanation that a life insurance policy he had has matured and is required to be paid out (he's still very much alive). No 1099R was received from the VA. If this were a regular insurance policy, I know that the insured would get a 1099R and they would pay tax on the difference between their premium investment and the value of the policy paid out. However, I'm not sure if this VA policy is different just because its the VA. Client has no idea what they invested in it, and since no 1099R was received, I'm inclined to think this is non taxable, but I'm looking for some confirmation. Anybody seen this before?

Ckenefick (talk|edits) said:

10 March 2012
I see it all the time.

RR 71-306

Jimbocpa (talk|edits) said:

10 March 2012
Ckeneflick, I really appreciate your response, thank you!

Fourforces (talk|edits) said:

13 March 2012
I have tried to download a copy of the RR 71-306 and nothing appears in any of the irs advanced searches. Do you have a copy you can forward to my email address of fourforces@sbcglobal.net...thank you!

Ckenefick (talk|edits) said:

13 March 2012
But do note the references to RR72-604 and 91-14...which don't affect things here.

Rev. Rul. 71-306, 1971-2 CB 76, IRC Sec(s). 61


Headnote: Rev. Rul. 71-306, 1971-2 CB 76 -- IRC Sec. 61 [CAUTION: This Rev Rul has been amplified by Rev Rul 72-604, 1972-2 CB 35 and revoked by Rev Rul 91-14, 1991-1 CB 18.]

Reference(s): Code Sec. 61; Reg ยง 1.61-1

Proceeds of matured National Service Life Insurance contracts and dividends paid on unmatured contracts are not includible in gross income; interest on dividends left on deposit is includible in income in the taxable year received or credited.

Full Text: Advice has been requested whether payments of the proceeds of matured insurance contracts issued under the National Service Life Insurance Act of 1940, payments of dividends on unmatured insurance contracts issued under such Act, and payments of interest earned on such dividends left on deposit with the Veterans' Administration are subject to Federal income taxes.

The National Service Life Insurance Act of 1940, Public Law 801, Seventy- sixth Congress, 54 Stat. 1008, as amended, was reenacted by Public Law 85- 857, 72 Stat. 1105, 38 U.S.C. 701-725.

The following is provided with respect to the taxation of benefits administered by Veterans' Administration at 38 U.S.C. 3101(a):

(a) Payments of benefits due or to become due under any law administered by the Veterans' Administration *** and such payments made to, or on account of, a beneficiary shall be exempt from taxation *** .

The Administrator of Veterans' Affairs is authorized to pay dividends on National Service Life Insurance contracts. The dividends may be left on deposit with the Veterans' Administration or received in cash at the option of the insured. Dividends left on deposit with the Veterans' Administration earn interest that is credited to the insured's account. Both the dividends and interest thereon, if any, are withdrawable by the insured at any time.

It is held that both the proceeds of matured insurance contracts issued under the National Service Life Insurance Act of 1940, as amended and reenacted, and the dividends paid under unmatured contracts are not subject to Federal income tax. However, the interest earned on dividends left on deposit with the Veterans' Administration is includible in gross income in the taxable year received or made available to the insured. See Revenue Ruling 57-441, C.B. 1957-2, 45.

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