Office of Personnel Annuity Question

[J Frank Parnell]

This is the first year that I have to take over my father's taxes.  He has a statement of annuity paid 1099-R from the Office of Personnel Management.  The taxable amount in 2A is UNKNOWN.  It has a number in box 9B.  What am I supposed to do in this situation.  He had a CPA do his taxes last year, but they just left the 2b blank, which doesn't seem right.  I know my sister had to mail in his 1099-R to the IRS, as they had questions last year.  It seems I have to do the "simplified method", but I don't have the date and year the annuity started, or the plan cost on the start date to do the calculations.  I have repeatedly asked OPM for this data, but their phone line just hangs up saying they are too busy.  I have tried repeatedly for several days and tried to get a hold of them, but no use.  I have filled out the form to ask them a question and got a response, but the response is always talk to the IRS we don't do taxes.  I asked them specifically for the start date and the plan cost, but they are just sending me a statement of his annuity, which I already know.  I tried within Turbotax to fill out the worksheet with the simplified method to the best of my ability, but it keeps questioning the fact that the 2A box is left blank.  What should I do?

[BillM223 · Accepted solution]

The issue is this:

A taxpayer is able to make after-tax contributions to a pension or annuity (they are taxed the same way). However, when these after-tax contributions are distributed to the beneficiary, they are not taxed, because they were already taxed before they went in.

If a taxpayer made no after-tax contributions before he/she started receiving the pension/annuity, the taxation would be easy: 100% of the distribution would be taxable. But when there are after-tax contributions in the pension/annuity, then there is a formula (the Simplified Method) to calculate how much of each distribution is taxable and how much is tax-free.

So, first of all, I would do what you have been doing: 

1. Asking the OPM if there were any after-tax contributions to the pension/annuity - they should know after all.

2. Look in your father's records to see if you see anything about after-tax contributions, also called "basis". Note that many taxpayers don't do this, so don't be surprised if you don't find anything.

3. Just file the return as if box 2a was equal to box 1. 

Note that if you start the Simplified Method but eventually tell TurboTax that there are no after-tax contributions, then TurboTax will be happy and 100% of the distribution will be taxable. It won't matter what start date or other things you enter.

You can go ahead and do this and file the return. If you find out later that there were after-tax contributions, then you can amend the return, up to three years out.

NOTE: Please look at his previous returns. If he had one OPM 1099-R compared lines 5a and 5b. Are they the same? Then your father had no after-tax contributions, and you can proceed.