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The distribution will be reported either to you or to your daughter - depending how that insurance policy was set up.
Correspondingly a part of distribution MIGHT be taxable for the person to whom it is reported.
see page 22 - Surrender of policy for cash.http://www.irs.gov/pub/irs-pdf/p525.pdfIf you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income.
You should receive a Form 1099R showing the total proceeds and the taxable part. Report these amounts on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A.Most likely a small portion which represents earning will be taxable.
Let me know if you need any help with reporting.
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