                    T.C. Summary Opinion 2009-114



                       UNITED STATES TAX COURT



          ALEX AND HELEN A. GIANNARIS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21098-08S.               Filed July 22, 2009.



     Alex and Helen A. Giannaris, pro sese.

     Sara D. Trapani, for respondent.



     LARO, Judge:     This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and



     1
      Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code, and Rule
references are to the Tax Court Rules of Practice and Procedure.
Some dollar amounts are rounded.
                                  -2-

this opinion shall not be treated as precedent for any other

case.

      Petitioners petitioned the Court to redetermine respondent’s

determination of a $22,039 deficiency in petitioners’ 2006

Federal income tax.   We decide whether petitioners may deduct as

an itemized deduction interest paid on a life insurance policy

loan.   We hold they may not.

                              Background

I.    Preliminaries

      The parties have submitted to the Court stipulations of fact

with accompanying exhibits.     The stipulated facts and the

accompanying exhibits are incorporated herein by this reference.

Petitioners are husband and wife, and they filed a joint Form

1040, U.S. Individual Income Tax Return, for 2006.     They resided

in Texas when their petition was filed.

II.   Policy Loan Interest

      On or about October 11, 1965, petitioner husband

(petitioner) purchased a life insurance policy (policy) from

Massachusetts Mutual Life Insurance Co. (MassMutual).     The face

value of the policy was $50,000.     Beginning in the early 1970s,

petitioner periodically borrowed against the value of the policy

and used the proceeds to supplement petitioners’ income.

Petitioner made no significant repayments on those loans or on
                                 -3-

any interest that accrued thereon.     The unpaid interest became a

part of the indebtedness.

       In 2005 when the loan balance (including unpaid interest)

exceeded the value of the policy, MassMutual notified petitioner

that the policy would terminate pursuant to its terms unless the

shortage was paid.    Petitioner did not make the required payment,

and the policy terminated in February 2006.    Petitioner received

$792 as the net proceeds of the policy upon its termination;

i.e., the difference between the total loan amount of $149,872

and the $150,664 cash value of the policy.

       For 2006 MassMutual issued a Form 1099-R, Distributions from

Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,

Insurance Contracts, etc., to petitioner reporting a taxable gain

of $105,190 resulting from termination of the policy.

Petitioners reported that taxable gain on their 2006 income tax

return.    Petitioners also claimed a deduction for the total

unpaid interest of $111,727 included in the loan balance,

reporting that this interest was home mortgage interest.

III.    Respondent’s Determination

        Respondent determined in the notice of deficiency that

petitioners were not entitled to deduct any of the $111,727 as

home mortgage interest because petitioners paid no home mortgage

interest during that year.
                                  -4-

                            Discussion

A.   Burden of Proof

     Taxpayers bear the burden of proving that the Commissioner’s

determinations set forth in the notice of deficiency are

incorrect.   Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115

(1933).   In certain cases, however, section 7491(a) shifts the

burden of proof to the Commissioner.     We need not decide which

party bears the burden of proof because we decide this case

without regard to the burden of proof.

B.   Interest Expense

     Section 163 generally allows a deduction for any interest

paid or accrued in the taxable year on indebtedness.     Personal

interest, however, is excluded.    Sec. 163(h)(1).   In this context

the term “personal interest” includes all interest except to the

extent the interest is:   (1) Trade or business interest; (2)

investment interest; (3) interest used to compute passive income

or loss; (4) qualified residence interest; (5) interest used in

extended estate tax payments; and (6) educational loan interest.

Sec. 163(h)(2).

      Petitioners claimed the interest expense as home mortgage

interest on their tax return for 2006.     In that year, however,

petitioners paid no home mortgage interest.     The interest is not

home mortgage interest (or more specifically qualified residence
                                -5-

interest) because the loans underlying the interest were not

secured by a residence.   See sec. 163(h)(3)(B)(i), (C)(i).

Petitioner’s life insurance policy, and not petitioners’

residence, collateralized the loan.     Petitioners make no further

claim as to why the interest is not personal interest, and the

limited facts at hand do not establish any other characterization

of the interest.   Petitioners contend that it is unjust to

include the $105,190 in their income when they actually received

only $792 in cash upon termination of the policy.       This is

especially so, petitioners assert, because they are in poor

health and suffering financially.     While we sympathize with

petitioners’ predicament, the fact of the matter is that the

interest is personal and under the law cannot be deducted.        We

note, however, that petitioners did benefit personally from the

use of the loan proceeds and that the $792 they received

corresponds to the net proceeds of the policy after subtracting

the loan amount, including interest accrued thereupon.

     We hold that petitioners are not entitled to deduct any of

the $111,727 as an interest expense.     Accordingly,



                                           Decision will be entered

                                      for respondent.
