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Returning Member

Life Insurance surrender no 1099-R

I cashed in an old policy and the issuing company provided the necessary data for filing but said I would get no 1099-R because the cash value (of the original policy) was less than $5000 and it was issued before August 12 1982.  Phone help refers to "the 5-10 rule" and "a ruling,"  but no one seems willing or able to give me a citation to tax authority.  Anybody?  Anybody?

6 Replies
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Level 15

Life Insurance surrender no 1099-R

This was part of Public Law 97-248 that changed annuity and insurance distributions from coming first from your investment in the contract for amounts invested before that August 14, 1982 to coming first from taxable earnings on amounts invested after on or after August 14, 1982.

 

See page 5 of IRS Pub 575:  https://www.irs.gov/pub/irs-pdf/p575.pdf

 

However, if you cashed in the entire policy, this difference in what portion comes out first does not matter since it all was distributed.  In this case the insurance company is apparently then not issuing a Form 1099-R simply because the amount of investment remaining in the contract was simply more that what was paid back out, and under those circumstances no reporting is required on a Form 1099-R or on your tax return.

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Returning Member

Life Insurance surrender no 1099-R

Hello DMerz.  Yours was a plausible answer, but I cashed in the whole policy and the letters from the insurance company list $3617.96 "Taxable Gain."  Again, they refer to "a ruling" and "the 5-10 rule."  I can't find a Rev. Ruling that seems on point.  But your cite works well on timing and maybe there was some information return guidance in its shadow?  Alternatively, 8/12/82 was my 32nd birthday....

 

And thanks for your response, with an extra bonus thanks for promptness.

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Level 15

Life Insurance surrender no 1099-R

The instructions for Form 1099-R only say that no reporting is required for surrender of the policy if the insurance company reasonably believes that none of the distribution is includible in income.  If they know that there is $3,617.96 of taxable gain (implying that it is includible in income), it seems that they must issue a Form 1099-R.  It seems that they would also have been required to withhold 10% of the taxable amount for taxes unless you instructed that there should be no tax withholding.  If taxes were withheld, they must issue a Form 1099-R.

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Returning Member

Life Insurance surrender no 1099-R

Thanks again, but no.  I asked for "no withholding," but they do not give that as a reason for not issuing a 1099-R .  They clearly have in mind a de minimis exception (5-10) for which they assert there is authority.  I'm looking in the transition rules of TEFRA (your PL97-248) given the coincidence of dates.  

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Level 15

Life Insurance surrender no 1099-R

With respect to a Form 1099-R, the de minimis amount is gross distribution amount under $10.

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Returning Member

Life Insurance surrender no 1099-R

In general, yes, it's $10.  But Prudential's tax advisers must know of a carve-out.  "5  thousand, 10 years." or something,,,,