Surrendered Annuities (purchased)

[BulldogTom]

I appologize for not having all the pertinent facts. I am developing them as I can get the information from the client.

Client is 87 years old. Purchased 2 annuities in 2000 for 11K each (verfiying that cost information). Last year, he surrendered the annuities. Recieved 2 1099R's from the company. First for 14K and second for 8K. Distribution code is 1 (early withdrawal, no known exceptions). Taxable amount in box 2 is full amount of distributions.

I don't have the contract yet, so I don't know if there were surrender charges or not. Don't know if it was a variable annuity or not. Don't know what the anticipated annuity starting date was.

Question 1 - where do I go from here. I think I can report the taxable amount based on the distribution less the cost. The one with 14K distributed would come out with 3K in taxable income (14K distribution less 11K cost of contract). Second one results in zero taxable income (8k distribution less 11K cost).

Question 2 - can he deduct the loss (if one trully exists) on the second distribution? Where? Sch A not subject to 2%

Question 3 - Can an 87 year old taxpayer have an early withdrawal penalty? I have never seen this before.

Thanks in advance.

Tom

Lodi, CA

[BulldogTom]

OK, I received the contracts from the client. They are variable annuities taken out for the benefit of his children. The annuity starting date was supposed to be 2040 and 2054. He surrendered the annuities and took the cash surrender value in a lump sum distribution. The actual investments were 16,500 and 11,100 respectively. He recieved 14,100 and 8,300 respectively.

I have been reading on the subject, and it looks like there is no taxable income to him. The losses go on the Sch A.

Now - how do I get this onto the return when the 1099R's show a taxable amount? What do I do about the Code 1?

Any help out there for putting this into ATX?

Thanks

Tom

Lodi, CA

[kcjenkins]

Tom, I don't have a cite, but what I would do is to enter the 1099-Rs, with zero in the Box 2 [taxable] box. Then the code really will not matter. Next I'd show the losses on the Sch A just as if the 1099s did not exist.

[BulldogTom]

That was what I was planning to do. I was also thinking I would mark the box at the top of the input form for "Non-Standard - handwritten or altered" since I am altering and handwriting in the taxable amount.

I am most concerned that this will trigger an audit. Not that I don't mind fighting an audit when I have good backup documentation, but the client is a (how should I say this) slightly disagreeable old man who is already pissed that the company will not change the 1099R. You know how older clients can get.

Tom

Lodi, CA

[kcjenkins]

I would not mark that box, Tom. Just entering the correct 'taxable amount' is not altering the form, as I understand the rules. The amount that is taxable is something that YOU determine, as I see it. Your call, but why flag it for such a simple issue?