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Posted by Brew1 on October 1, 2008, 7:28 pm
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On Oct 1, 4:03 pm, kam...@panix.com (Arthur Kamlet) wrote:
>
>
>
>
>
> >> broker sold two annuities for my client and bought another one with
> >> proceeds.
> >> The 1099-R's are not coded "3" (like-kind exchange), they are coded
> >> "7" with
> >> a fair amount of taxable income. Client is not happy with me, as her
> >> broker
> >> assured her that only what was distributed to her would be taxed.
> >> These annuities
> >> were not inside a retirement account and the only way I see of
> >> avoiding tax is to
> >> have the 1099-R's re-issued, and quite frankly, I would be surprised
> >> if they were
> >> handled properly to qualify for a like-kind exchange. A colleague's
> >> suggestion that
> >> I change the code on the 1099-R when I enter the data is not
> >> acceptable to me.
> >> Two weeks to go and no new 1099-R's appear to be forthcoming.
>
> >> ========================================= MODERATOR'S COMMENT:
> >> A 1099-R Code 3 is Disability Payment
>
> >I think "6" is a tax free exchange.
>
> >Brokers screw up. Clients don't here everything that applies.
>
> >Trace it back to the broker to see what his or her records show the client
> >wanted, then see if the broker can fix the problem (if indeed they need to
> >fix it).
>
> And if this is a tax free annuity exchange that should have been
> reported as code 6, IRS Pub 575 Page 18 says this code 6 1099 does
> not even have to be reported on the 1040.
>
> A good reason to get it corrected.
>
> Otherwise I'd report it as a rollover, writing Rollover to the
> left of line 16 and not adding any amount to box 16b.
> --
>
> ArtKamlet at a o l dot c o m Columbus OH K2PZH
>
>
thanks to the moderator and others for the correction on the Box 7
code (I should know better than rely on
my memory).
There is no possibility of a rollover in this case--the original
annuities were purchased with
non-retirement funds.
The broker has been unable (so far) to correct the problem. Without
new 1099-R's, it would come down
to qualifying as a like-kind exchange. I don't think it does,
although I guess it might depend
on an interpretation of "an integrated transaction"; to quote the IRS:
to qualify as a Section 1031 exchange, a deferred exchange must be
distinguished from the case of a
taxpayer simply selling one property and using the proceeds to
purchase another property (which is a
taxable transaction). Rather, in a deferred exchange, the disposition
of the relinquished property and
acquisition of the replacement property must be mutually dependent
parts of an integrated transaction
constituting an exchange of property. Taxpayers engaging in deferred
exchanges generally use
exchange facilitators under exchange agreements pursuant to rules
provided in the Income Tax Regulations.
--
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