My Aunt who I do not prepare her taxes can not get in touch with her CPA called me tonight. The code D in box 7 is a new code this year for section 1411. Her 1099R has box 1 gross distribution 27,000 box 2 7,000, box 5 34,000 box 7 code 7D. Taxable amount not determined not mark and total distribution not marked. She said it is a non qualified annuity and the person who sold it to her said at the time it would not be taxable until she withdraws. According to her she did not withdraw and has never received a 1099R in the past 10 years. I ran this in my 2013 tax software and it is taxing the 7,000 and she said that is not correct. Does anyone have any input on this it would be appreciated. Oh her net investment income is well under the threshold for section 1411 it is 69,000. She is 80 and lives off of investment income and SS.
-
-
I am assuming your aunt does not have AGI (modified) over $200,000?
Was the annuity liquidated?
I think it is ordinary distribution (code 7) the D may be because the issuer thinks that the recipient has income over the threshold.
A call to the annuity company or issuer of 1099-R is warranted.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
No she does not have MAGI over $200K. I read it the same way you did the distribution code is a 7 and the D is just because they don't know what her total investment income is but could play into the threshold. According to her she did not liquidate and that is why she is upset and called me. She did call the issuing agency and got someone in the Philippines after two hours holding. gotta love it right. I gave her a local number to Prudential and we shall see where that goes tomorrow. I just wanted to see if there were any out of the box thoughts out there. thanksComment
-
I used to work for Prudential 30 yrs back. I believe their servicing center is in Scranton, PA for the 1099 forms.
You may want to go to their website and look for client services and get a US # to call.
I still have Prudential Life Insurance policies and when I have to call it gets routed to a call center in Iowa.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
-
Thanks for the info. I will post the outcome.Comment
-
Sounds fairly straightforward
The IRS instructions for Form 1099-R state, for Code "D", the following:
Annuity payments from nonqualified annuities and distributions from life insurance contracts that may be subject to tax under section 1411.
One would think the payer (obviously not aware of total taxpayer income) is simply providing relevant information that would be important for taxpayers who might be at the higher income levels??
I'm not quite sure if your client is having a problem with the dollar amounts shown (many people can, ahem, be "confused" on income from annuities) or the technical aspects of what is likely a properly prepared Form 1099-R.
You might face quite a challenge finding someone to verify/explain the dollar amounts shown. . .
FEComment
-
1099 Code D-Health Care Act
Code Section 1411 is part of the ACA which imposed the extra 3.8% tax on investment income, which as we all know by now, includes taxable portions of annuities. The 1099 code D (box 7) is correct in that there is $7000.00 of investment income which may or may not be subject to the 3.8% tax on investment income (TTB 6-1 and 6-6), depending on whether the taxpayer meets other income thresholds. Your facts indicate that of her annuity distrubtion, $7000.00 was subject to that and the code D reflects that protion (same amount in this case) subject to the Sec. 1411 extra 3.8% tax. Your facts do not indicate what other income is present; it may be that the taxpayer is not liable for the extra 3.8%. It is what it is, and no, it doesn't matter what the taxpayer claims an insurance agent told her some years ago. The form used to compute the net investment income tax (niit) is 8960 if this applicable.
As a prior post indicates, this is pretty straight forward.Friends double; family triple. Don't buy an audit for yourself. If someone has to go to jail make sure it is the client. Remember it is only taxes, nothing important.Comment
-
Seems odd that if your aunt never took a distribution that a 1099R would have been issued. It is possible that the annuity contract was such that at some time, date or age distributions would begin. Then again maybe it was put into her bank account and she just forgot or was not aware that it was. Apparently good that the company figured out the taxable portion. On the few annuities I have run into we have had to figure out the taxable portion of each distribution ourselves. It is probable that they have to include code D because, as mentioned, the company does not know all the other possible income the person has. All that means is that the taxable portion MAY be subject to the extra tax.Comment
-
She didn't receive any distribution. The issuer of 1099-R is reporting a distribution occurred. Did a distribution occur? (Identity theft - someone else taking distributions from her account?)Comment
-
Annuity income headaches
I would seriously doubt this issue is in any way related to identify theft. Most institutions have way too many safeguards in place to allow a fraudulent $34k withdrawal to occur.Originally posted by David1980 View Post
OTOH, annuities and their kin come in all kinds of flavors. You don't have to find a check in the mailbox for a taxable event to have occurred. (And many holders of annuities are....well, not completely aware of what they agreed to some time in the past.)
At this stage, the client and a responsible person should contact the holder of the account and ask for an explanation of the source of each of the dollar amounts shown on the Form 1099-R.
My 2ยข wager? : Everything is correct!
FEComment
-
I wouldn't be too quick to rule that out. Some years ago I attended the funeral of a friend's mother. We were all impressed with the eulogy given by her investment advisor. The family was much less enamored with her when they went to cash in the life insurance and annuities she had sold the deceased. She had cashed out and borrowed from the various accounts she had set up. It took a couple of years to sort through what she had done.Originally posted by David1980 View PostIn other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
-
Theft possibility
I believe that event would better fall into the category of "fraud," and not what most people would refer to as identity theft. Not unlike a lawyer raiding a trust account for "funds."Originally posted by DaveO View Post
It happens.
While such cannot be positively ruled out in this scenario, I still have my bet on the Form 1099-R being correct.
Hopefully the original poster will keep us updated?
FEComment
-
Another possibility.....she transferred the money to another custodian without doing the proper 1035 exchange? The elderly are often "persuaded" to change companies for a better deal. More often than not, it isn't. Get Pru on the phone with her present and you can sort this out.Comment
-
ATSMAN: She got ahold of a local rep and he had the annuity dept at Prudential call her. The 1099R according to that dept is correct. She did not withdraw or receive any tangible money into her local bank account. It is the way the instrument is structured. She did not ever receive one in the past because there was never a positive gain whereas this year he explained to her there was thus that portion is taxable. And I would guess any in the future. thanks for all the posts!Comment
-
Problem solved
That's pretty much what I expected. Many folks who have a salesman bedazzle them with an annuity purchase later realize they are in for a few "surprises."Originally posted by DONNA ASTON View Post
Of course, as you apparently now realize, the relevance/existence of any "tangible money" via a "withdrawal" is essentially irrelevant.
Ah, Albuquerque. Any sightings of Walter White or Skyler....or even Jesse?? "Better Call Saul!"
FE
And have an A1 day !!Comment
Comment