Question

find, and summarize the IRS rule(s) set forth for

Rev. Rul. 2009-13, 2009-21 I.R.B. 1029

Answer 1

Rev. Rul. 2009-13 , 2009-21 I.R.B. 1029 is primary associated with sale of life insurance contract , tax treatment of sale or surrender. This ruling provides guidance to all the policy holders who surrender or sell their life insurance contracts. The issue was the amount and character of income to be recognized upon surrender or sale of life insurance contracts. There are 3 situation in this ruling

In situation 1, taxpayer A surrenders a policy to the insurer for its cash surrender value of $78,000 net of $10,000 insurance protection cost.At the date of surrender, A had paid premiums on the policy totaling $64,000. As a result, A must recognize gain in the amount of $14,000. The IRS holds that this amount must be recognized as ordinary income based on Rev. Rul. 64-51, which states that “the proceeds received by an insured upon the surrender of, or at maturity of, a life insurance policy constitutes ordinary income to the extent such proceeds exceed the cost of the policy.”

Situation 2 has the same set of facts as situation 1, except that A sells the policy to an unrelated third party for $80,000 rather than surrendering it to the insurer. Here we will calculate the a's basis in the policy which is 64,000-10,000= 54,000. Total gain would be 80,000-54,000=26,000. He will recognize ordinary income to the extent of 14,000 (in situation 1) and 12,000 will be taxed as capital gain.

situation 3 addresses the tax implications of the sale of a term life insurance policy. In this situation, A sold the policy for $20,000 after holding it for 89.5 months. A had paid a monthly premium of $500 for 90 months. Absent any information to the contrary, the Service assumes that 100% of premiums are treated as cost of insurance, so A’s only basis in the contract is the unearned premium from the final one-half month, or $250. The gain of $19,750 is treated as capital because there is no ordinary income component to a term life insurance policy.