It depends. The life insurance proceeds reported on the Form 1099-R would indicate it must be included in your tax return as a distribution from a pension or annuity.
Unless you have distinct and clear and verifiable information to the contrary it should be taxed to the beneficiary. The fact the company issued the 1099-R indicates there is more money in the contract than what was paid for the policy or it was paid for by an employer, as opposed to your aunt. Depending on the age of the policy and if we assume your aunt paid all of the premiums, there could be substantial earnings that would not be tax free.
Annuities are not life insurance policies but are sold by insurance agents. There are many different investment products that would be taxable as a pension or annuity. It could help if you find out exactly what type of plan your aunt purchased.
You must include the 1099-R in your income and include the withholding appropriately.
In the end you will decide how you want to handle it, however the IRS will inquire. It can take up to two years, and if they do not agree with you, penalty and interest will accumulate.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
