I know your response was for 2018, but I assume it will be accurate for any tax year. My situation: I elected option 4 CFH for one of my policies, which of course emerged from the bankruptcy filing in Dec 2016. I bought the policy in 2009 under my IRA, for $20,000. From that date up to the emergence from bankruptcy some premiums were paid from IRA funds deposited to make premium payments. In 2016 (or 2017) the policy was converted to a regular (?) investment, and The IRA custodian produced a 1099-R for $20,000, my original purchase price, and I paid taxes on that as a distribution from my IRA. Along comes 2019 and the insurance policy finally matures and Life Partners Position Holder Trust sends a 1099-R for the gross distribution without, of course, any calculations for the taxable amount, as has been described in other correspondence on this subject. As I understand from other corresponcence, some people chose to enter their cost basis as a negative number on "Line 21", yet there is an option to file a form 4852 with the missing info added, i.e. Cost of policy plus premiums paid, to create a taxable amount. The question is Do I submit the original 1099_ And form 4852, or do I just submit the 4852 with all the sordid details? I fear if I submit both , the numbers are going to get screwed up. If I correct the 1099-R I will get the right taxable amount but it will not match what LPPHT submits to the IRS and the IRS will come breathing down my neck. If I make the correction on Line 21,will I need to follow with the 4852? What do you suggest?
i my humble opinion as a tax adviser, i would report the original 1099 R and not the 4852. That is used strictly in case if you did not receive a 1099R, which you did.
If you know the basis of this distribution, you can enter that amount in Box 2A. if IRS questions you on this at a later time, make sure you have the documentation to prove this basis is correct. From what you have told me, this is a return of contribution.
i wouldn't represent this as a negative number on line 21 unless there is no other alternative.
I did the 4852 only, this form replaces your incorrect 1099-r so you complete it as the 1099-r should have been in the first place ie you calculate box 2 showing your tax basis. place it behind page one of 1040. You should have gotten a letter via email from the trustee telling you he can't give you tax basis. I would, on top of form 4852, write, lpi bankruptcy case # and put it in and a copy of his letter. For all of you wanting to tell me no, i'm only saying what I will do. I have had no issues, now on year 3. As long as you can back up what you put on the form, I doubt the irs is going to be that upset at what, at best, is a geography error on your return. Good luck to you
We recently received information on the Grator Letters we will be receiving and the recommended tax form entries. Presumably, the "other income" entry will include policy redemptions the Trust has received for the policies we contributed to the Trust. Has anyone decided how they will be showing a cost basis for the policies they contributed?