I do not understand the taxable amount question regarding my annuity, I have been using turbo tax for years and always get stuck, can someone help?

[BillM223]

I assume that you are referring to box 2a on the form 1099-R.

This box is used if the PAYER can determine the taxable amount (not you, but the retirement plan administrator).

Often the Payer cannot determine the actual Taxable Amount so they leave box 2a blank and may or may not check box 2b.

Why wouldn't a pension or annuity be 100% taxable?

If the taxpayer paid after-tax dollars into the pension or annuity while working, then when the pension or annuity pays out, there is a formula by which it is determined what part of the payout is calculated to be a "return of basis". "Basis" just refers to the amount of after-tax contributions paid into the pension or annuity.

Normally, you would be asked a series of questions about your basis or "contributions" to the pension or annuity. You are expected to have tracked this, although sometimes if you have had the same plan administrator all along, they may know.

Most situations call for you to use the Simplified Method to determine the amount of the return of basis per year.

Of course, if you had no basis in the pension or annuity, your retirement plan distribution is generally 100% taxable.

There are a lot of issues here - does this cover your question?

[mcgintyboy]

I purchased some annuities way back in 1981 and over the years rolled them over with 1035 exchanges into new annuities with different companies. The current company does not have the correct basis in their record which is higher than what they show. Some of the original companies are no longer there so old records there do not exist. I do have my own records. 

When I withdraw funds from the annuity the basis they will show in the 1099 will be too low. 

How can I claim a higher basis than what the 1099 will show without getting audited?

Thanks,

JM

[dmertz]

mcgintyboy, it's doubtful that you can avoid having an examiner at the IRS scrutinize your reporting of this.  If the annuity company reports a taxable amount that is incorrect, you'll need to file a substitute Form 1099-R (Form 4852) to show the correct amount, provide information on your attempts to get the annuity company to correct the Form 1099-R and provide your explanation as to why the amount on Form 1099-R is incorrect and why your claimed amount is correct.  Filing Form 4852 will require mailing your tax return and will result in your tax return and explanation being scrutinized by an examiner.  Even if the annuity company leaves box 2a of the Form 1099-R blank and marks box 2b Taxable amount not determined, it's likely that the reporting will be scrutinized by an examiner if your tax return reports that less than the full gross amount is taxable.  Whether or not the examiner accepts your explanation will determine whether or not you get any notice for under-reported income to which you would need to respond.

[Critter-3]

If you have the correct basis then tell the current administrator so they can update their records so the 1099-R is issued correctly.   If they will not or do not issue a correct 1099-R then you can make the adjustment on the return.  

[mcgintyboy]

Thanks for the reply. The current administrator, State Farm says that they have to get any basis corrections from the previous administrator. They will not use my records. However, the former administrators are no longer there so they can't furnish the correct basis. This dates back to the 1980's.

If I manually change the 1099 it will not match what State Farm has sent to the IRS and I risk an audit. If I am audited, I'm not sure what the IRS position would be. 

Is there any way I can go to the IRS in advance and get a ruling in my favor before withdrawing funds from the annuity?

[Critter-3]

A private ruling letter not only takes time  it  can be expensive ...

https://www.investopedia.com/terms/p/plr.asp#:~:text=One%20of%20the%20burdens%20of,%2450%2C000%20for....

https://www.irs.gov/faqs/irs-procedures/code-revenue-procedures-regulations-letter-rulings/code-reve...

IMO  ... just take the needed box 2a adjustments when you file  (since box 2b should be checked) and answer any IRS letter if you ever actually get one (highly unlikely). 

[camercenary]

my 1099-R from the Office of Personnel Mgmt. put a smaller amount in box 2a than in box 1.  I do not know if that was done in simplified or general. I did not make that computation and do not know which way to answer it.

[dmertz]

If box 2b Taxable amount not determined is not marked, OPM is confident that the taxable amount shown in box 2a is accurate and there should be no need for you to calculate the taxable amount yourself.