May be includable in gross income...

[Lion]

Federal tax law requires us to notify you that all or part of the amount distributed may be includable in gross income depending upon the investment in the contract.
Cash value 2,329.02
Dividend accumulations 612.35
Interest on accumulations 9.60
Pro-rata refund of premium 12.23
Termination dividend 58.23
Special irreg divd 54.36
Check amount 3,075.79
Client labeled this Insurance Policy Surrender
The cover letter form AXA Equitable said "The Internal Revenue Service does not require life insurance companies to calculate taxable amounts on policies that meet certain guidelines...Questions regarding tax regulations should be referred to your Tax Consultant."
HELP

[erchess]

Here is what I would do

Start with the Check amount.

Take out the Interest, Div, Accumulations, Irreg Div and Termination Div and report on Sch B.

Then take out the total of all premiums tp can prove were paid, and if there is a balance left over put it on line 21 with the literal "Insurance Policy Surrender".

I would be interested in reading if anyone disagrees with me. TTB 3-20 basically says to me that this situation should not happen but we all know things that should not happen still do.

[Lion]

Thank you

Thank you very much.

[les grans]

I'm pretty sure that the "dividend accumulation" isn't taxable and should not go over to Schedule B. And the other two "dividend" items maybe the same, I'm not sure.

In the context of life insurance, "dividends" usually are actually a return of premium and not taxable dividends. Not enough words in our language, and we have to use the same one, now and then, to mean two different things. Blame Noah Webster...

Possibly the "interest on accumulations" @ $9.60 is the only Schedule B income item in here...

As for any premiums that the client can't "prove" use your judgment and interpolate liberally. If anybody ever challenges you, tell them - in a tone of voice that says "this argument is over" - that if the taxpayer had *ever* missed a premium payment, the policy would have lapsed, and the taxpayer wouldn't have it, now, to be surrendering it. That should quiet the IRS agent's squeaking...

[Lion]

Great Points

Thanks for all your help with this. Now to call the client...

[Burke]

Start with the Check amount.

Take out the Interest, Div, Accumulations, Irreg Div and Termination Div and report on Sch B.Then take out the total of all premiums tp can prove were paid, and if there is a balance left over put it on line 21 with the literal "Insurance Policy Surrender".
I would be interested in reading if anyone disagrees with me. TTB 3-20 basically says to me that this situation should not happen but we all know things that should not happen still do.

Whoa, whoa, whoa. None of those items are reportable on Sche B. The dividends are a return of premium and not taxable. The interest will be, but probably did not get a 1099 as it is under $10. Basically, if you take out the interest and add everything else up, and that amount is more than the policyholder paid in (less the cost of insurance), then he has a taxable gain. If he HAD a taxable gain, AXA would have reported it and sent them a 1099R. It is not the responsibility of the tax preparer to calculate this.

[les grans]

Where did the parenthetical "less the cost of insurance" come from? I've always thought that the tax basis of a life insurance contract was the gross premiums paid net of any dividends actually received...

[Burke]

Federal tax law requires us to notify you that all or part of the amount distributed may be includable in gross income depending upon the investment in the contract.
Cash value 2,329.02
Dividend accumulations 612.35
Interest on accumulations 9.60
Pro-rata refund of premium 12.23
Termination dividend 58.23
Special irreg divd 54.36
Check amount 3,075.79
Client labeled this Insurance Policy Surrender
The cover letter form AXA Equitable said "The Internal Revenue Service does not require life insurance companies to calculate taxable amounts on policies that meet certain guidelines...Questions regarding tax regulations should be referred to your Tax Consultant."
HELP

Just wanted to let you know I have a client that cashed in 3 AXA Equitable policies and the check stubs showed the taxable gain, even though he did not have the 1099R. Proceeds were $4,439, taxable gain $648; $2,056, taxable gain $402; and $2,332, taxable gain $484. Policies were taken out in the 1950's. They have to been pretty old to even have taxable gain.

[Lion]

Thanx

You guys are the best!

[Art]

What if the taxpayer had a loss on surrender of policy?

Facts:

Total cash value $17,913.26
Surrender Value $ 16,294.86
Premiums Paid $ 25,431.28
Cost Basis $ 27,673.00

The above info was sent by the insurance company. There were no loans on the policy and no interest credited. Would the $ 11,378.14 (cost basis less surrender value) be a deductible loss for tax puposes ?

Art