Robert E. Braun, Docket No. 25467-21S, filed 11/5/26, thought his Northwestern Mutual policies became annuities at age 65. So when he started writing for a living and discovered it didn’t cover his living expenses (welcome to the club, Bob), he borrowed against cash surrender value and finally stopped paying.

So The Quiet Company quietly converted his whole life to term life, used some of what was left of the cash surrender to pay those premiums to pay off the loans he had taken. The loan payoff was taxable, of course, and Bob got a 1099-R showing a $115K distribution to him.

Bob says he never got penny one.

STJ Diana L. (“Sidewalks of New York”) Leyden deloivers the bad news.

” If a taxpayer’s cash value of his life insurance is greater than the amount of the taxpayer’s net investment in the policy (premiums paid), the taxpayer constructively received ordinary income that is taxable under section 72(e) on the amount of the cash value minus the premiums paid.

“The record in this case is clear that after petitioner stopped paying the premiums, Northwestern Mutual used to the cash value of the two original insurance policies to purchase term life insurance. Further, there was excess cash value (greater than the amount of the petitioner’s premium paid) when this occurred. The upshot of this was that petitioner was enriched because of the cash value of the original policies was greater than the amount of premiums he had paid. Petitioner has not demonstrated that an exception to the rules stated above apply.” Transcript, at p. 11. (Citations omitted).

Bob claims Northwestern Mutual did him wrong.

“Petitioner asserted in his testimony that Northwestern committed ‘fraud’ when it sold him his policies and when it converted the policies into term life insurance, but petitioner acknowledged that he did not take any affirmative steps to reverse the conversion or to bring an administrative or legal action against Northwestern Mutual to assert fraud.” Transcript, at p. 12.

IRS’ counsel failed to provide proof of Boss Hossery at trial, so Bob isn’t liable for chops.