                         T.C. Memo. 2007-189



                       UNITED STATES TAX COURT



                BARBARA E. SEAMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22048-05.               Filed July 16, 2007.



     Barbara E. Seaman, pro se.

     Sandra M. Jefferson, for respondent.



                         MEMORANDUM OPINION


     CHIECHI, Judge:    This case is before the Court on peti-

tioner’s motion for summary judgment that the Court has

recharacterized as petitioner’s motion for partial summary

judgment (petitioner’s motion)1 and respondent’s cross-motion for


     1
      In petitioner’s motion, petitioner seeks summary judgment
                                                   (continued...)
                              - 2 -

partial summary judgment (respondent’s motion).2   We shall deny

petitioner’s motion, we shall grant respondent’s motion, and we

shall, sua sponte, grant summary judgment for respondent on the

second of the two issues raised in petitioner’s motion.

                           Background

     The record establishes and/or the parties do not dispute the

following.

     Petitioner resided in Alexandria, Virginia, at the time she

filed the petition in this case.

     Petitioner and her former husband, Thomas Martin Seaman (Mr.

Seaman), married on or about April 26, 1960.

     During 1964, petitioner purchased a life insurance policy

(Prudential policy) on her life from The Prudential Insurance

Company of America (Prudential) that was in force at least

throughout 2003, the year at issue in this case.   The Prudential

policy provides in pertinent part:




     1
      (...continued)
on two issues and notes that respondent concedes a third issue.
See infra note 2.
     2
      In respondent’s motion, respondent seeks summary judgment
on the first, but not the second, of the two issues raised in
petitioner’s motion and concedes a third issue arising from one
of the determinations that respondent made in the notice of
deficiency (notice) that respondent issued to petitioner for her
taxable year 2003. Thus, that third issue is resolved by respon-
dent’s concession, and not by summary adjudication by the Court.
                              - 3 -

                       DIVIDEND PROVISIONS

          Annual Dividends.--While this policy is in force
     other than as extended or reduced paid-up insurance,
     the portion, if any, of the divisible surplus of the
     Company accruing upon the policy at each policy anni-
     versary will be determined annually by the Board of
     Directors, and will be credited to the policy as a
     dividend on such anniversary provided all premiums due
     hereunder have been paid in full to such anniversary
     and the Insured is living at that time.

          (Notice.--There probably will not be any divisible
     surplus from which to credit any dividend to this
     policy before the third policy anniversary.)

          Upon proper written request to the Home Office,
     any such dividend may be (1) paid in cash, or
     (2) applied to the reduction of any premium then due,
     or (3) applied at the net single premium rate at the
     Insured’s attained age to provide a paid-up life insur-
     ance addition, or (4) left to accumulate with compound
     interest at the rate authorized from time to time by
     the Board of Directors, but not less than 2½% per
     annum. If no other option has been elected within 31
     days after the policy anniversary, any such dividend
     will be paid in cash * * *. Upon proper written re-
     quest to the Home Office, * * * any dividend accumula-
     tions may be withdrawn unless * * * they have been
     applied to modify any non-forfeiture value as provided
     in the policy or are required as security for a loan on
     the policy. * * *

In the application for the Prudential policy, petitioner elected

to have dividends accumulate with interest.

     During 1969, Mr. Seaman purchased a life insurance policy

(USAA policy) on his life from USAA Life Insurance Company (USAA)

that was in force at least throughout 2003.   The USAA policy

provides in pertinent part:

     DIVIDENDS. At the end of the second Policy year and
     annually thereafter, while in force except as extended
     term insurance, this Policy shall be credited with such
                              - 4 -

     share of the divisible surplus of the participating
     business of the Company as may be apportioned thereto
     by the Company.

     Options. At the option of the Owner each dividend may
     be
          (a) paid in cash, or
          (b) applied in reduction of any premium then due,
     or
          (c) applied to provide a participating paid-up
     addition to the Amount of Insurance under this Policy
     (hereinafter called life addition), or
          (d) left to accumulate to the credit of this
     Policy with interest, as determined by the Company, at
     not less than 2½% per annum, compounded annually (here-
     inafter called dividend accumulation), or
          (e) applied to purchase a non-participating one
     year term insurance addition (hereinafter called term
     addition), payable in event that the Insured’s death
     occurs within one year from the date on which such
     dividend becomes due, but terminating without grace or
     notice at the end of one year from the due date of such
     dividend.

     Any option may be elected in the application for this
     Policy or by written request to the Company at its Home
     Office and such election will be effective until re-
     voked; * * *. Election of any option or revocation
     thereof shall apply only to dividends becoming due
     thereafter, except that, at the option of the Owner,
     election of any option may be made retroactive to a
     dividend due within thirty-one days prior thereto. If
     no dividend option is elected prior to the date a
     dividend becomes due or within thirty-one days thereaf-
     ter, such dividend will be applied by the Company under
     Option (d) * * *.

     At any time * * * dividend accumulations * * * may be
     withdrawn. * * *

In the application for the USAA policy, Mr. Seaman elected to

have dividends accumulate with interest.

     On July 24, 1986, petitioner and Mr. Seaman divorced pursu-

ant to an agreed final decree of divorce (petitioner’s divorce
                                 - 5 -

decree) entered by the District Court for the 285th Judicial

District, Bexar County, Texas.    Petitioner’s divorce decree

incorporated by reference an agreement incident to divorce that

set forth, inter alia, an agreement on the division of the

marital estate (petitioner’s property settlement agreement).

     Petitioner’s divorce decree provided in pertinent part:

          6.   Retirement Benefits.

          The Court finds that based on BARBARA EDITH SEA-
     MAN’s marriage to THOMAS MARTIN SEAMAN for eighteen
     (18) of the twenty (20) years THOMAS MARTIN SEAMAN
     served in the United States Army, BARBARA EDITH SEAMAN
     is entitled to fifty percent (50%) of the disposable
     military retired pay currently being received by THOMAS
     MARTIN SEAMAN and a like percentage of disposable
     military retired pay which THOMAS MARTIN SEAMAN shall
     receive in the future.

           *        *      *      *      *      *      *

           IT IS ORDERED AND DECREED that the U. S. Army pay
     BARBARA EDITH SEAMAN fifty percent (50%) of THOMAS
     MARTIN SEAMAN’s current and future retired military pay
     directly beginning with the first payment on August 1,
     1989.

     Petitioner’s property settlement agreement provided in

pertinent part:

          4.03    Assets Awarded to BARBARA EDITH SEAMAN

          BARBARA EDITH SEAMAN is awarded the following as
     her sole and separate property, and THOMAS MARTIN
     SEAMAN is divested of all right, title, interest, and
     claims in and to such property:

           *       *      *       *      *      *      *

          d.     Any and all policies of life insurance pur-
                 chased during the marriage to include the
                 USAA, AMAA and Prudential policies which
                                - 6 -

               insure the life [of] THOMAS MARTIN SEAMAN.

           *      *         *    *      *      *       *

          g.   Fifty percent (50%) of the disposable mili-
               tary retired pay currently being received by
               THOMAS MARTIN SEAMAN and a like amount of
               disposable military retired pay which THOMAS
               MARTIN SEAMAN shall receive in the future.

     As of the date on which petitioner’s divorce became effec-

tive, section 1408 of title 10 of the United States Code (title

10) defined the term “disposable retired pay” to which peti-

tioner’s divorce decree and petitioner’s property settlement

agreement referred.   That section provided in pertinent part:

     § 1408. Payment of retired or retainer pay in compli-
     ance with court orders

     (a) In this section:

           *      *         *    *      *      *       *

          (4) “Disposable retired * * * pay” means the total
     monthly retired * * * pay to which a member [of an
     armed force or a uniformed service] is entitled * * *
     less amounts which--

           *      *         *    *      *      *       *

               (C) are properly withheld for Federal, State,
          or local income tax purposes, if the withholding
          of such amounts is authorized or required by law
          and to the extent such amounts withheld are not
          greater than would be authorized if such member
          claimed all dependents to which he was entitled;

10 U.S.C. sec. 1408(a)(4)(C) (1982 & Supp. IV 1986).

     On November 5, 1990, Congress enacted the National Defense

Authorization Act for Fiscal Year 1991, Pub. L. 101-510 (NDA

Act), 104 Stat. 1485.   As pertinent here, in the NDA Act, Con-
                               - 7 -

gress amended section 1408(a)(4) of title 10 by deleting from

that section subparagraph (C) (quoted above).     NDA Act sec.

555(b)(3), 104 Stat. 1569.   As amended, section 1408 of title 10

no longer reduces disposable retired pay (i.e., the total monthly

retired pay to which a member of an armed force or a uniformed

service is entitled) by amounts “properly withheld for Federal,

State, or local income tax purposes”.   10 U.S.C. sec. 1408(a)(4).

Congress made its amendment of section 1408 of title 10 applica-

ble to divorces that became effective on or after February 3,

1991.   NDA Act sec. 555(e)(2), 104 Stat. 1570.    (We shall refer

to disposable retired pay as that term is defined for divorces

that became effective prior to February 3, 1991, as pre-amendment

disposable retired pay.   We shall refer to disposable retired pay

as that term is defined for divorces that became effective on or

after February 3, 1991, as post-amendment disposable retired

pay.)

     In August 1989, the Finance and Accounting Center of the

United States Department of the Army (AFAC) began making the

monthly payments to petitioner that petitioner’s divorce decree

and petitioner’s property settlement agreement required and that

were equal to 50 percent of Mr. Seaman’s pre-amendment disposable

retired pay.   In 1991, the Defense Finance and Accounting Service

(DFAS) assumed the operations of AFAC and continued to make such

payments to petitioner.
                              - 8 -

     During the fall of 1992, petitioner received a “Notice to

Former Spouse” from DFAS (DFAS notice).   That notice stated in

pertinent part:

          The Internal Revenue Service has recently ruled
     that Defense Finance and Accounting Service must with-
     hold federal income tax on amounts received as a divi-
     sion of retired pay. A Form 1099R (Distributions From
     Pensions, Annuities, Retirement or Profit Sharing
     Plans, IRA’s Insurance Contracts, etc.) will be issued.
     It will reflect the former spouse’s gross entitlement
     and federal income tax withheld for payments received
     by former spouses as a division of property for the
     calendar year. * * * No change is required in the
     computation of the amount due the former spouse, taxes
     are still allowed as a deduction before dividing the
     retired pay. Amounts reflected on the Form 1099-R
     issued to the former spouse will be excluded from the
     Form 1099-R issued to the retiree.

          Tentative plans call for first issuing Form 1099-R
     and withholding federal income taxes on property pay-
     ments paid to former spouses in 1993. * * * [Reproduced
     Literally.]

     Before DFAS implemented the plans that it announced in the

DFAS notice, inter alia, to withhold Federal income tax (tax) on

amounts to which a former spouse is entitled “as a division of

retired pay”, neither DFAS nor AFAC withheld tax from the monthly

payments that each made to petitioner pursuant to petitioner’s

divorce decree and petitioner’s property settlement request.

     Around early 1993, DFAS implemented certain of the plans

that it announced in the DFAS notice and, inter alia, began

withholding tax on the monthly amounts of pre-amendment dispos-

able retired pay to which petitioner is entitled under peti-

tioner’s divorce decree and petitioner’s property settlement
                               - 9 -

agreement.

     During 2003, petitioner was entitled to monthly amounts of

pre-amendment military retired pay totaling $13,809.35.   During

that year, DFAS paid her that total amount less $1,354.71, the

tax that DFAS withheld on that total amount.

     DFAS also implemented certain of the other plans that it

announced in the DFAS notice and, inter alia, issued to peti-

tioner Form 1099-R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts,

etc., for her taxable year 2003 (petitioner’s 2003 Form 1099-R).

That form showed $13,809.35 as both “Gross distribution” and

“Taxable amount” and $1,354.71 as “Federal income tax withheld”.

     Prudential issued to petitioner Form 1099-INT, Interest

Income (Form 1099-INT), for her taxable year 2003 (petitioner’s

2003 Prudential Form 1099-INT) with respect to the interest for

that year on any dividend accumulations under petitioner’s

Prudential policy.   That form showed $191.45 as “INTEREST INCOME”

(2003 interest on petitioner’s Prudential policy dividend accumu-

lations).

     USAA issued to petitioner Form 1099-INT for her taxable year

2003 (petitioner’s 2003 USAA Form 1099-INT) with respect to the

interest for that year on any divided accumulations under peti-

tioner’s USAA policy.   That form showed $435.87 as “INTEREST

INCOME” (2003 interest on petitioner’s USAA policy dividend
                               - 10 -

accumulations).

     Petitioner timely filed a tax return for her taxable year

2003 (petitioner’s 2003 return).    In that return, petitioner did

not include in her gross income (1) the $13,809.35 that DFAS

showed as both “Gross distribution” and “Taxable amount” in

petitioner’s 2003 Form 1099-R, (2) the $191.45 of 2003 interest

on petitioner’s Prudential policy dividend accumulations that

Prudential showed in petitioner’s 2003 Prudential Form 1099-INT,

and (3) the $435.87 of 2003 interest on petitioner’s USAA policy

dividend accumulations that USAA showed in petitioner’s 2003 USAA

Form 1099-INT.    In petitioner’s 2003 return, petitioner did not

claim as tax withheld the $1,354.71 that DFAS showed as “Federal

income tax withheld” in petitioner’s 2003 Form 1099-R.

     In the notice that respondent issued to petitioner for her

taxable year 2003, respondent determined, inter alia, to include

in petitioner’s gross income (1) the $13,809.35 that DFAS showed

as both “Gross distribution” and “Taxable amount” in petitioner’s

2003 Form 1099-R, (2) the $191.45 of 2003 interest on peti-

tioner’s Prudential policy dividend accumulations that Prudential

showed in petitioner’s 2003 Prudential Form 1099-INT, and (3) the

$435.87 of 2003 interest on petitioner’s USAA policy dividend

accumulations that USAA showed in petitioner’s 2003 USAA Form
                               - 11 -

1099-INT.3   In the notice that respondent issued to petitioner

for her taxable year 2003, respondent also increased the total

payments of tax shown in petitioner’s 2003 return by $1,354.71,

the amount that DFAS showed as “Federal income tax withheld” in

petitioner’s 2003 Form 1099-R.

                             Discussion

     The Court may grant summary judgment where there is no

genuine issue of material fact and a decision may be rendered as

a matter of law.    Rule 121(b);4 Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).

     We consider initially the first of the two issues raised in

petitioner’s motion and the only issue raised in respondent’s

motion, namely, whether petitioner must include in her gross

income for her taxable year 2003 the $13,809.35 that DFAS showed

as both “Gross distribution” and “Taxable amount” in petitioner’s

2003 Form 1099-R.    The parties agree, and we conclude, that there

is no genuine issue of material fact regarding that issue.5


     3
      In the notice, respondent rounded all amounts.
     4
      All Rule references are to the Tax Court Rules of Practice
and Procedure. Unless otherwise indicated, all section refer-
ences are to the Internal Revenue Code in effect for the year at
issue.
     5
      Petitioner contends that, when DFAS began withholding tax
from the amount to which she is entitled under petitioner’s
divorce decree and petitioner’s property settlement agreement, it
also began calculating the amount to which she is entitled under
that divorce decree and property settlement agreement as 50
                                                   (continued...)
                              - 12 -

     The United States Court of Appeals for the Fourth Circuit

(Court of Appeals), in which an appeal in this case would nor-

mally lie, and this Court have addressed the precise issue

presented here.   Pfister v. Commissioner, 359 F.3d 352 (4th Cir.

2004), affg. T.C. Memo. 2002-198.   In Pfister v. Commissioner,

359 F.3d 352, the taxpayer took substantially the same position

that petitioner takes here.   The taxpayer maintained there that

the term “disposable retired pay” used in the divorce decree in

question was calculated after tax was withheld and that therefore

the taxpayer should not be taxed upon the amount of such dispos-

able retired pay to which the taxpayer was entitled under that

divorce decree.   In rejecting the taxpayer’s position, the Court

of Appeals stated:

     Pfister does not contend that her ex-husband’s military
     retirement pay is not a pension; rather, based upon
     Pfister’s flawed interpretation of the * * * definition
     of “disposable retired pay” Pfister contends that she
     is statutorily entitled to her portion of her former
     husband’s retirement pay without any tax liability.
     Pfister’s argument is without merit.

           *      *      *      *      *      *      *



     5
      (...continued)
percent of Mr. Seaman’s post-amendment disposable retired pay,
rather than 50 percent of Mr. Seaman’s pre-amendment disposable
retired pay. Resolution of petitioner’s contention is not
material to our resolution of the issue presented. In any event,
that contention is rejected by the DFAS notice that petitioner
received in the fall of 1992. That notice stated in pertinent
part: “No change is required in the computation of the amount
due the former spouse, taxes are still allowed as a deduction
before dividing the retired pay.”
                             - 13 -

          * * * Essentially, Pfister argues that because
     “disposable retired pay,” by definition, is calculated
     after taxes are withheld, it should not be taxed upon
     payment to the retiree’s spouse or former spouse.
     Implicit in that argument is Pfister’s contention that
     she is not the owner of one-half of her former hus-
     band’s retirement pay. Therefore, the issue becomes
     whether Pfister owns her portion of her ex-husband’s
     retirement pay.

           We hold that Pfister is the owner of one-half of
     her former husband’s retirement pay, and she is there-
     fore liable to pay the * * * income tax deficiency.
     * * *

           *      *      *      *      *      *      *

           It is well established that military retirement
     payments “are gross income to the party who owns the
     right to those payments pursuant to the division of
     property in a divorce.” Moreover, as the Tax Court
     noted, “[i]t is axiomatic in Federal tax law that
     income is taxable to the legal owner of the * * *
     property producing the income.” Pfister provides no
     theory on which to contradict this conclusion. Accord-
     ingly, we conclude that the Tax Court properly deemed
     Pfister to be the owner of one-half of her former
     husband’s military retirement pay. [Citations omit-
     ted.]

Pfister v. Commissioner, supra at 353-355.

     We conclude that the holding of the Court of Appeals and its

rationale underlying that holding in Pfister v. Commissioner, 359

F.3d 352, which were based upon this Court’s holding and its

rationale underlying that holding in Pfister v. Commissioner,

T.C. Memo. 2002-198, are controlling in the instant case.     On the

record before us, we find that, pursuant to petitioner’s divorce

decree and petitioner’s property settlement agreement, petitioner

is the owner of 50 percent of Mr. Seaman’s disposable retired
                                  - 14 -

pay.       On that record, we hold that the $13,809.35 that DFAS

showed as both “Gross distribution” and “Taxable amount” in

petitioner’s 2003 Form 1099-R is includible in petitioner’s gross

income for her taxable year 2003.6

       We consider now the second issue raised in petitioner’s

motion, namely, whether the $191.45 of 2003 interest on peti-

tioner’s Prudential policy dividend accumulations that Prudential

showed in petitioner’s 2003 Prudential Form 1099-INT and the

$435.87 of 2003 interest on petitioner’s USAA policy dividend

accumulations that USAA showed in petitioner’s 2003 USAA Form

1099-INT are includible in petitioner’s gross income for her

taxable year 2003.

       In petitioner’s motion, petitioner alleges that, in order to

have been able to withdraw during 2003 the 2003 interest on

petitioner’s Prudential policy dividend accumulations and the

2003 interest on petitioner’s USAA policy dividend accumulations,

she was required to surrender the Prudential policy and the USAA

policy.       As a result, according to petitioner, her control over

the receipt of such interest during 2003 was subject to a sub-

stantial limitation or restriction.

       In respondent’s response to petitioner’s motion (respon-


       6
      We note that in the notice that respondent issued to peti-
tioner for her taxable year 2003 respondent increased the total
payments of tax shown in petitioner’s 2003 return by $1,354.71,
the amount that DFAS showed as “Federal income tax withheld” in
petitioner’s 2003 Form 1099-R.
                              - 15 -

dent’s response), respondent alleges that petitioner was able to

withdraw during 2003 the 2003 interest on petitioner’s Prudential

policy dividend accumulations and the 2003 interest on peti-

tioner’s USAA policy dividend accumulations without surrendering

the policies in question.   However, respondent maintains in that

response that, in order to establish that allegation, “testimony

from a representative of the insurance companies is necessary”.

Thus, according to respondent, a genuine issue of material fact

exists “concerning whether the petitioner could have withdrawn

the interest in 2003, without surrendering the life insurance

policies.”

     In petitioner’s reply to respondent’s response (petitioner’s

reply), petitioner modifies her position in petitioner’s motion

that she was required to surrender the policies in question in

order to have withdrawn during 2003 the 2003 interest on peti-

tioner’s Prudential policy dividend accumulations and the 2003

interest on the USAA policy dividend accumulations.     In peti-

tioner’s reply, petitioner acknowledges that surrendering those

policies was not the only way for her to have been able to make

such withdrawals of such interest.     In that reply, petitioner

concedes that “there are provisions under which dividends can be

withdraw[n] with the associated interest.”     However, according to

petitioner,

     While dividends can be withdrawn with the associated
     interest, the reverse is not true. Interest cannot be
                             - 16 -

     withdrawn without withdrawing dividends; that means, in
     petitioner’s case, that in order to withdraw all of the
     interest earned in 2003, petitioner would have had to
     request in writing * * * the withdrawal of all the
     dividends accumulated since the inception of the poli-
     cies. * * * In order to withdraw the 2003 interest of
     $191.45 and $435.87, respectively, petitioner would
     have had to either surrender the policies for their
     cash value of $8,935.93 and $18,656.31, respectively,
     or withdraw all of the dividends accumulated over more
     than 25 years, amounting to $6,380.81 and $13,267.54 on
     the Prudential and USAA policies, respectively. * * *
     Petitioner proposes that the restrictions on the with-
     drawal of the 2003 interest are sufficiently substan-
     tial * * *.

     In respondent’s reply to petitioner’s reply (respondent’s

reply), respondent asserts in pertinent part:

     petitioner makes two factual misstatements concerning
     the terms of the insurance policies. First, the insur-
     ance policies do not explicitly or implicitly state
     that the petitioner must surrender the insurance poli-
     cies in order to obtain interest on the accumulated
     dividends. Second, the insurance policies do not
     explicitly or implicitly state that the petitioner must
     withdraw all of the accumulated dividends for the
     entire term of the policies in order to withdraw any of
     the interest on the accumulated dividends. There is
     absolutely nothing in the insurance policies in support
     of the petitioner’s erroneous factual statements. * * *

Respondent maintains in respondent’s reply that a trial is

necessary in order to show that petitioner’s contentions as to

the circumstances under which she was able to withdraw during

2003 the interest at issue are wrong.   Thus, according to respon-

dent, there is a genuine issue of material fact not only as to

whether petitioner was able to withdraw during 2003 the interest

at issue without surrendering the policies in question but also

as to whether petitioner was required to withdraw all of the
                             - 17 -

respective dividend accumulations under those policies in order

to have been able to make such withdrawals of such interest.   We

disagree.

     The Prudential policy provides in pertinent part:

          Annual Dividends.--While this policy is in force
     * * *, the portion, if any, of the divisible surplus of
     the Company accruing upon the policy at each policy
     anniversary will be determined annually by the Board of
     Directors, and will be credited to the policy as a
     dividend on such anniversary * * *.

            *     *      *      *      *      *      *

          Upon proper written request to the Home Office,
     any such dividend may be (1) paid in cash, or * * *
     (4) left to accumulate with compound interest at the
     rate authorized from time to time by the Board of
     Directors, but not less than 2½% per annum. * * * Upon
     proper written request to the Home Office, * * * any
     dividend accumulations may be withdrawn * * *.

     The USAA policy provides in pertinent part:

     DIVIDENDS. At the end of the second Policy year and
     annually thereafter, * * * this Policy shall be cred-
     ited with such share of the divisible surplus of the
     participating business of the Company as may be appor-
     tioned thereto by the Company.

     Options. At the option of the Owner each dividend may
     be
          (a) paid in cash, or

            *     *      *      *      *      *      *

          (d) left to accumulate to the credit of this
     Policy with interest, as determined by the Company, at
     not less than 2½% per annum, compounded annually (here-
     inafter called dividend accumulation), or

            *     *      *      *      *      *      *

     At any time * * * dividend accumulations * * * may be
     withdrawn. * * *
                               - 18 -

     We find no ambiguity in the respective above-quoted provi-

sions of the Prudential policy and the USAA policy as to whether

petitioner was able to withdraw during 2003 the respective

amounts of interest at issue without surrendering those policies.

We find those respective provisions to be clear:     they allowed

petitioner to make such withdrawals of such interest without

surrendering those policies.   We conclude that there is no

genuine issue of material fact as to whether petitioner was able

to withdraw during 2003 the 2003 interest on petitioner’s Pruden-

tial policy dividend accumulations and the 2003 interest on

petitioner’s USAA policy dividend accumulations without surren-

dering the policies in question.

     In contrast, we find an ambiguity in the respective above-

quoted provisions of the Prudential policy and the USAA policy as

to whether petitioner was required to withdraw during 2003 all of

the respective dividend accumulations under those policies in

order to have withdrawn during that year the interest at issue.

Thus, we agree with respondent that there is a genuine issue of

fact with respect to that question.     However, we disagree with

respondent that resolution of that genuine issue of fact is

material to our determination of whether the 2003 interest on

petitioner’s Prudential policy dividend accumulations and the

2003 interest on petitioner’s USAA policy dividend accumulations

are includible in petitioner’s gross income for her taxable year
                               - 19 -

2003.    That is because our determination of whether such interest

is so includible does not depend upon the resolution of that

genuine issue of fact.    We conclude that there is no genuine

issue of material fact as to whether petitioner was required to

withdraw during 2003 all of the respective dividend accumulations

under the Prudential policy and the USAA policy in order to have

withdrawn during that year the interest at issue.7

     Having concluded that there is no genuine issue of material

fact with respect to our determination of the second issue

presented in petitioner’s motion, namely, whether the interest at

issue is includible in petitioner’s gross income for her taxable

year 2003, we shall now address that issue.    In resolving it, we

turn to certain regulations under sections 61 and 451 for guid-

ance.    As pertinent here, regulations under section 61 provide:

          § 1.61-7. Interest.--(a) In general. As a gen-
     eral rule, interest received by or credited to the
     taxpayer constitutes gross income and is fully taxable.
     * * * For rules determining the taxable year in which
     interest, including interest accrued or constructively
     received, is included in gross income, see section 451
     and the regulations thereunder. * * *

             *      *      *      *      *      *      *


     7
      Respondent maintains that if we were to conclude, as we
have, that there is no genuine issue of material fact as to the
withdrawal of interest under the policies in question, respondent
is entitled to summary judgment on whether the interest at issue
under those policies is includible in petitioner’s gross income
for her taxable year 2003. In support of that position,
respondent relies on certain regulations under secs. 61 and 451
and Cohen v. Commissioner, 39 T.C. 1055 (1963) (discussed below).
See infra note 9.
                        - 20 -


  (d) * * * interest on life insurance. * * * Where
accrued interest on unwithdrawn insurance policy divi-
dends is credited annually and is subject to withdrawal
annually by the taxpayer, such interest credits consti-
tute gross income to such taxpayer as of the year of
credit. However, if under the terms of the insurance
policy the interest on unwithdrawn policy dividends is
subject to withdrawal only on the anniversary date of
the policy (or some other date specified therein), then
such interest shall constitute gross income to the
taxpayer for the taxable year in which such anniversary
date (or other specified date) falls.

As pertinent here, regulations under section 451 provide:

     § 1.451-2. Constructive receipts of income.--
(a) General rule. Income although not actually reduced
to a taxpayer’s possession is constructively received
by him in the taxable year during which it is credited
to his account, set apart for him, or otherwise made
available so that he may draw upon it at any time, or
so that he could have drawn upon it during the taxable
year if notice of intention to withdraw had been given.
However, income is not constructively received if the
taxpayer’s control of its receipt is subject to sub-
stantial limitations or restrictions. * * * In the case
of interest, dividends, or other earnings (whether or
not credited) payable in respect of any deposit or
account in a bank, building and loan association,
savings and loan association, or similar institution,
the following are not substantial limitations or re-
strictions on the taxpayer’s control over the receipt
of such earnings:

     *      *      *      *      *      *      *

     (3) A requirement that the earnings may be with-
drawn only upon a withdrawal of all or part of the
deposit or account. * * *

     *      *      *      *      *      *      *

  (b) Examples of constructive receipt. * * * Accrued
interest on unwithdrawn insurance policy dividends is
gross income to the taxpayer for the first taxable year
during which such interest may be withdrawn by him.
                                - 21 -

     In Cohen v. Commissioner, 39 T.C. 1055 (1963), we consid-

ered, inter alia, the precise issue presented in the instant

case.     The pertinent provisions of the respective insurance

policies involved in Cohen are materially the same as the perti-

nent provisions of the respective policies involved here.8       In

Cohen v. Commissioner, supra, we applied the above-quoted respec-

tive regulations under sections 61 and 451 in determining whether

the respective amounts of interest on certain dividend accumula-

tions under the insurance policies involved there were includible

in the gross income of the taxpayer for the taxable year in which

such interest was credited or earned.     In holding that such

amounts of interest were so includible, we stated:

             With regard to amounts earned by petitioner on
        dividends left on deposit with the respective insurance
        companies, we find that such amounts are properly
        denoted as interest and, upon the periodic crediting of
        such interest to the account of the petitioner by the
        respective insurance companies, was subject to his


     8
      One of the policies involved in Cohen v. Commissioner, 39
T.C. 1055 (1963), provided in pertinent part: “Under the
Accumulation plan, Dividends are retained by the Company and
accumulated at Interest, compounded yearly * * *. The
Accumulation may be withdrawn within thirty-one days after the
end of any Policy year during the whole of which this Policy
shall have been in force * * *.” Id. at 1056. Another of the
policies involved in Cohen provided in pertinent part: “surplus
distributions [policyholder dividends] may be * * * left on
deposit with the Company to accumulate with interest * * *,
payable with proceeds of the policy or withdrawable in cash on
demand”. Id. at 1057. The remaining policy involved in Cohen
provided in pertinent part: “Each * * * dividend, at the option
of the Owner, shall be * * * left with the Company to accumulate,
with interest * * *, and payable at maturity or on demand.” Id.
at 1058.
                              - 22 -

     unfettered right to withdraw it. Each insurance policy
     listed three types of options as to the payment of
     dividends earned. Petitioner elected the same type of
     option with respect to each policy and the class of
     option so chosen provided that he could leave the
     dividends on deposit with the companies to earn inter-
     est at a fixed rate per annum. The options provided in
     addition that the accumulations of dividends and inter-
     est earned thereon were “withdrawable in cash on de-
     mand” by the insured. See sec. 1.61-7(d), as amended,
     Income Tax Regs.

          These factors lead us to the conclusion that the
     interest so credited to petitioner’s account from the
     date of purchase of the policies to, but not including,
     1958 was constructively received by him during each of
     the years in which he owned the policies * * *. [Fn.
     ref. omitted.]

Cohen v. Commissioner, supra at 1063-1064.

     We conclude that our holding and our rationale underlying

that holding in Cohen v. Commissioner, supra, are controlling in

the instant case.9   On the record before us, we find that the

$191.45 of 2003 interest on Prudential policy dividend accumula-

tions that Prudential showed in petitioner’s 2003 Prudential Form

1099-INT and the $435.87 of 2003 interest on USAA policy dividend

accumulations that USAA showed in petitioner’s 2003 USAA Form

1099-INT are includible in petitioner’s gross income for her

taxable year 2003.   We conclude that respondent is entitled as a

matter of law to summary adjudication on the issue of whether

such interest is so includible.   We shall, sua sponte, grant



     9
      Respondent agrees that Cohen v. Commissioner, supra,
controls the resolution of whether the interest at issue here is
includible in petitioner’s gross income.
                             - 23 -

summary judgment for respondent on that issue.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     To reflect the foregoing and respondent’s concession,


                              An order denying petitioner’s mo-

                         tion and granting respondent’s motion

                         will be issued and decision will be

                         entered under Rule 155.
