1099-R life insurance

[gman]

Taxpayers received two 1099-r's relating to change of ownership for life insurance. One 1099 states code G-rollover. NO problem. The other has 5000. in box 1 and box 2 is left blank. Taxable amount and total distribution boxes are both marked along with box 7 stating code 7. Attached letter taxpayers received states box 1 is the cash value of the life insurance policy. Taxpayers never recieved any money and were suprised to get the two 1099r's. Would this be taxable to taxpayers-- Supplemental info also states that the 1099r reports the change in ownership of a life insurance policy from employer to plan recipient.

Thanks for any help.

[Burke]

First thing is, you cannot rollover life insurance. So the one that says "G" must be an annuity or something else. What was it rolled over into? On the second one, it's probably right. It is considered a taxable distribution (the whole $5K) if the employer gave it to the employee. This means the employee now owns the life insurance policy and could cash it in for the value at any time. If he cashes it in for more than $5K, he will have taxable income on the addl money. If he keeps it and it pays out at his death to his beneficiary, it is tax-free.

[gman]

Taxpayer

Taxpayer states that he did not receive any money and would gladly pay tax if he had.
Supplemental info states that ownership of policy changed from employer company to individual. It does not say that the Life Insurance was moved to a new Insurance company, but I believe it was and that is why 1099's were issued.

Every employee received the two 1099's. - 40 employees..

[Burke]

This is bizarre. The employee may not have received any money, but he (apparently) received the constructive receipt of value of the life insurance policy which is now in his name. He should contact the new insurance company to verify this and determine what his options are. I am befuddled as to why two 1099-R's were issued, especially the one that says "G" if these are due to the same issue and not another contract of some sort. As I said, you cannot "rollover" a life insurance policy. However, I suppose you can handle that one, since the way it is reported there should be no taxable event the IRS computer is looking for. These employees need to contact their employer or whoever issued these 1099's to get it straightened out. Who is the payor listed on the 1099-R and the entity that issued the accompanying letter? The old insurance company? Or the employer? You would think there would have been some kind of explanation as to why this was being done. And there should be a telephone number on the 1099-R of someone to contact.

[gman]

Thanks,

for your help. Both 1099-R's have the employers name. The employees have contacted the employer, prior insurance broker, new one, and made calls to IRS. New company Wells Fargo states they should all wait to file to see if a corrected 1099 is issued, but feel they have waited long enough. The attached statement states the 1099-r reports the change in ownership of life insurance from employer to employee....

[Burke]

Well, as I said the first one (code G) is not a problem. The second one looks like it is taxable income, ord rates. If it were me, I might be cashing in that policy......