DISO - Deferred Income Settlement Option

[Jesse]

What the heck is this and where do I report it?
No 1099R?
I'm thinking line 21 other income?

Elderly taxpayer had a contract of some type w/ Thrivent - he's not much help.
A check for $5315.89 came and on the stub:
$5,315.89 - Termination amount
$3,622.78 - Taxable Income reportable to IRS

and a letter:

You are receiving this letter because you were an owner on a Defferred Income Settlement Option (DISO) Agereement with Thrivent Financial.

Based on our understanding of tax laws and our administrative rules at the time, we issued you the DISO and treated the proceeds as tax-deffered until distributed. After further review, we now know that DISO proceeds cannot be treated as tax-deferred. As a result, we are making adjustments that will comply with tax law.

For the 2007 tax year, your DISO proceeds should have been treated as "assets on deposit". This means that any interest earned in tax year 2007 prior to the surrender will be reported on IRS form 1099-INT. However, since the interest earned of $3.15 is less than $10.00, no 1099-INT will be sent. You should include this interest when you file your 2007 tax year payable in 2008.

Thrivent Financial is currently working with the IRS to address any interest and gain that should have been reported to you for past years. Since Thrivent Financial is working through a formal IRS program to address our reporting error, it is our current expectation that you will be responsible for paying tax on interest for 2007 only, and you will not be responsible for any interest or gain from prior tax years. We will notify you when we have a final resolution from the IRS."

[Koss]

Do nothing

Elderly taxpayer had a contract of some type w/ Thrivent - he's not much help.
A check for $5315.89 came and on the stub:
$5,315.89 - Termination amount
$3,622.78 - Taxable Income reportable to IRS

<snip>

Thrivent Financial is currently working with the IRS to address any interest and gain that should have been reported to you for past years. Since Thrivent Financial is working through a formal IRS program to address our reporting error, it is our current expectation that you will be responsible for paying tax on interest for 2007 only, and you will not be responsible for any interest or gain from prior tax years. We will notify you when we have a final resolution from the IRS. [Emphasis supplied]

Sounds like maybe the client should just do nothing until they get more information.

Report the $3.15 in interest as you normally would, even though the client didn't get a 1099-INT.

Looks like maybe the gains and interest that have accumulated over the years, which should have been taxed in the year they were earned, are the difference between "termination amount" and the "reportable amount."

But if Thrivent is still negotiating with the IRS, it may not be income to the taxpayer for 2007. Or for any year.

If Thrivent ultimately pays the tax on that gain, for the taxpayer, then the taxpayer will get a 1099-MISC, with an amount in Box 3, for the amount of tax that Thrivent paid. That obviously didn't happen in 2007; it will probably happen in 2008.