I have a client who is currently a South African citizen, but has been living in the US for many years and is applying for citizenship. He has some endowment (life insurance) policies in South Africa that he would like to cash out. He was resigned to paying (US) taxes on the gains, but I was wondering if it would be possible to avoid/defer the taxes with a 1035 exchange into an annuity here in the US. Is that even allowed? Or do 1035 exchanges need to be transactions entirely (both coming and going) within the United States?