White v. Comr., T.C. Sum. Op. 2012-104

(petitioner purchased life insurance policy for undisclosed face amount through employer in 1992 and paid approximately $22,000 via payroll withholding; petitioner thought he had abandoned the policy upon ending employment and taking different job with different employer, but policy remained in force; life insurance company issued petitioner Form 1099-R for difference between gross distribution and petitioner's investment in policy - $3,089.92; insurance company, upon petitioner's request, explained that policy had lapsed with an outstanding loan that exceeded basis in policy and that distribution code 7 in box 7 of 1099-R was a "normal distribution" not subject to early withdrawal penalties; second letter sent to petitioner that policy issued with "automatic premium loan provision" meaning that any premium payment not paid would be treated as loan against cash value of policy if sufficient value present (with interest accruing), and that when insufficient value present to support loan to cover premium, policy would lapse and outstanding loan would trigger income reportable on Form 1099-R; petitioner claimed that he didn't owe tax on funds he never received; court disagreed on basis that petitioner benefitted from loan against value of policy even though petitioner had the insurance coverage under the policy that he did not know about; amount received not received as an annuity as required under I.R.C. Sec. 72(e)(1)(A)).