Amor F. Pierce and Ida Mae Pierce v. Commissioner of Internal Revenue
Opinion
Opinion
The question presented is whether deductions from gross income claimed on petitioners’ federal joint income tax return for the calendar year 1954 for payments made by them to the All Service Life Insurance Corporation of Phoenix, Arizona constituted “interest paid on indebtedness” within the meaning of section 163(a) of the Internal Revenue Code of 1954. The stipulated facts of the case are set out in the Tax Court’s opinion. 37 T.C. 1039 .
The Tax Court determined that the instant case is controlled by the case of Knetsch v. United States, 364 U.S. 361 , 81 S.Ct. 132 , 5 L.Ed.2d 128 (1960). We agree. The transaction involved in the instant case, as in Knetsch, lacked economic significance. There was nothing of substance realized by the taxpayer beyond tax deductions. See Kaye v. Commissioner, 287 F.2d 40 (9th Cir., 1961). In both the present case and Knetsch, taxpayers purchased from an insurance company long-term deferred annuity contacts of large denominations, executed notes secured only by the annuity contracts, promised to pay interest in advance, and promptly borrowed back the increase in the value of the policies resulting from the advance payment of interest.