Understood, perfectly, that basis return is capped at original investment amount. In my case I have had only two annual distributions of a lifetime stretch
(death benefit payout of my mother's non-qualified annuity, which had never had any withdrawals or payments before she died. Original basis was approximately 10% of cash / death benefit value at her passing, reflecting a long accumulation period. This basis is confirmed by the customer service rep)
and the payer showed both as fully taxable. Very similar to the Prudential situation in the original question. Since Pubs 575 and 939 are very clear about applying the General Rule to periodic payments, including specific mention of death benefits for an inherited annuity, I can only guess that the annuity company is wrongly characterizing the payments as withdrawals (they actually show as "withdrawals" on the transaction confirmations). I don't have much faith in corporate America to do the right thing for customers; if they can save a buck via simplification without undue compliance risk to the company they will do so. Two separate customer phone support reps told me the earnings come out first, then at the end is basis returned. They are obviously trained to say that instead of something about how their compliance department made a determination or a calculation on my specific annuity when deciding the payments are 100% taxable. No specific reason or evidence for the fully taxable characterization has been given to me. I have now requested details of their lifetime stretch calculation & resulting payment schedule so I have back-up to support my application of the General Rule. Am I missing something here?
