Viatical Policy

[Acownt4it]

Client invested $15000 in a viatical policy in 1996. The company directors were prosecuted for theft and partial payback of equity is due. TP will receive approximately $1900.
TP received first check in Jan. for $339. TP died in Feb. The trust will receive the remaining $1561.

Is this a capital loss? If so, which tax return does it go on? The TP final return and the trust return?

Any help on this is appreciated.

[S T]

?Income Respect of a Decedent

Noel,

Wouldn't this be income in respect of a decedent?

Income in Respect of a Decedent
Income a decedent earned or was entitled to receive before death. This income is included in the gross income of the survivor who receives it.

So the income decedent received would be on the 1040 and the income that the estate receives would be 1041.

Might this settlement qualify for theft loss rather than Capital Loss, I am not sure. Maybe someone else will post.

Sandy

[Acownt4it]

Yes your are right regarding the IRD.

I called the PP hotline to find out how to report the income. The agent told me that if it was a court ordered payment it gets reported as "Other Income" on Line 21.

I am still going to research this more. Even though the amount in nominal, why is it that your can't claim any loss on investment through a capital loss or casualty theft/loss but you have to claim all of the income.

I have more reading to do.

Thanks for you input.

[Unregistered]

Theft

can be written off as that. If that is what it was........

[DaveO]

Was it in a retirement account?

We had a couple of clients in our office get into these with IRA accounts.

[Acownt4it]

how did you handle it?

[DaveO]

It's still playing out.

One client invested $50,000 and it looks like she may get about $6,000 back. The whole mess went into recievership. It was a scam from the start. The viactors were not terminal and the policies were issued under bogus terms. The physician that documented the terminal status was a phony. At one time FMV was $0 and we suggested a ROTH conversion. We will have her deposit the money into her traditional IRA as soon as she gets the check. The people who promoted and sold the thing should be behind bars.