The annuity is either a qualified annuity (IRA, SEP, Simple) or it's a non-qualified annuity. You can't mix qualified and non-qualified funds to purchase a single annuity. If you used IRA funds to purchase the annuity, and didn't take a taxable distribution, it would have been a rollover, and you have a qualified annuity - an annuity inside an IRA. If you took a distribution, then you would have (or at least should have) reported that on your tax return for the year you took the distribution. If you then used those funds to purchase an annuity, you would have a non-qualified annuity. Given that the issuer of the 1099-R insists that the form is correct, it sounds to me like you have a distribution from an IRA/SEP/SIMPLE account that has the invested the funds in the account in an annuity. That would be reported like any other distribution from an IRA/SEP/SIMPLE. If there is an after-tax component to the account, you calculate the taxable and non taxable amounts on Form 8606 - Nondeductible IRAs.
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