Tax reporting of Matured Life Insurance Policy Amount

[NSNM]

Client claims she purchased a Life Insurance Policy for Euro 45000 issued on 05/01/2007 in Austria with a policy value of Euro 45000.
Policy matured on 05/01/2012. She did not receive any amount (loan or principal) during the 5 years period.

She informed me that after completing required forms, her account was credited with Euro 48600 on 08/28/2012.
I believe the difference in value Euro 3600 (48600 - 45000) is taxable.
And the amount of Euro 45000 is not taxable.

My question is what is the nature of income? and where is that income $4743 (Euro 3600) reported on Form 1040?
(US $1.00 = Euro 0.759 as per US Treasury Financial Management Service Rate as of 12/31/2012).

Is it Schedule B (interest income), Schedule D (long term capital gain), or Line 21 (Form 1040) Other income?

I have seen bank statement for the amount (Euro 48600) credited.
I have no access to Life insurance policy to decipher the information.
Even if I had, the policy is in German and I don't understand it.

Thanks and appreciate any response.

[mastertaxguy]

Paid up/cashed out life insurance policy

Suggest Rev Rul 2009-13 be reviewed and applied where applicable. Prior discussions on this topic indicate there is some taxable income, but some of the payment may be dividends from the carrier which would not be subject to income tax. See TTB 3-21.

[Burke]

Life insurance policy for face amount = amount paid in? Doesn't sound like a life ins policy to me. Whatever this was, it apparently made money, and I don't think you have any choice, unless you can get clarification of its nature otherwise, but to report the increase in income as taxable on Line 21. If you do have access to the policy/document and can post the title, I believe there is more than one person on this board that can tell you what it says.

[BOB W]

All life insurance policies are reported on a 1099R. But in this case there will probably none issued because of a foriegn company is involved. What would I do? I would report it on line 21 with a full reporting simular to a 1099R.

This could have been an annuity...???

[veritas]

I'm wondering

Client claims she purchased a Life Insurance Policy for Euro 45000 issued on 05/01/2007 in Austria with a policy value of Euro 45000.
Policy matured on 05/01/2012. She did not receive any amount (loan or principal) during the 5 years period.

She informed me that after completing required forms, her account was credited with Euro 48600 on 08/28/2012.
I believe the difference in value Euro 3600 (48600 - 45000) is taxable.
And the amount of Euro 45000 is not taxable.

My question is what is the nature of income? and where is that income $4743 (Euro 3600) reported on Form 1040?
(US $1.00 = Euro 0.759 as per US Treasury Financial Management Service Rate as of 12/31/2012).

Is it Schedule B (interest income), Schedule D (long term capital gain), or Line 21 (Form 1040) Other income?

I have seen bank statement for the amount (Euro 48600) credited.
I have no access to Life insurance policy to decipher the information.
Even if I had, the policy is in German and I don't understand it.

Thanks and appreciate any response.

since this appears to be a foreign held asset? Are there other reporting requirements?

[NSNM]

Thank you all for responses

Mastertaxguy's suggestion of reading Rev Ruling 2009-13 was very interesting with details.
It has various angles to the issues. Most important is to get the insurance contract to
determine the tax treatment. I have asked client to get a copy. But I may not get it
soon as the client hints she does not have it here in US.

Burke's thought was exactly I had in mind. It did not sound like life insurance policy.
As you opined, I am inclined to report as other income on Line 21, in the absence of
additional verifiable information.

Bob W correctly guessed that there is no 1099-R as this did not originate in USA.

Veritas's thoughts are correct. It is subject to reporting on Form TD F 90-22.1 and
client has reported it prior to due date of 06/30/2013. And is also required to be
reported on Form 8938-Statement of Foreign Financial Assets, and attached to Form 1040.
As a single status filer, along with other foreign bank accounts, client met the threshold
of $50000 on the last day of the tax year and so it is reportable on Form 8938.

After discussing with client the point brought up by Burke, to me, it appears like a
5-Year Certificate of Deposit and interest payable at maturity. I have asked for
verifiable document for the lump sum payment she effected in May 2007 and any
other contract paper she signed with it.

Thank you all and appreciate your responses.

[Burke]

It may also have been a 5-Yr Universal life ins policy where the "value" was the contract value, not the face amount on the insured. Regardless, this would not have paid dividends, and any earnings would still be reportable on Line 21. I would be inclined to treat it accordingly, and if information comes to light later, amend if necessary.