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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3919
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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im writting on behalf of my father trying to help him.his prior

Resolved Question:

im writting on behalf of my father trying to help him.his prior employed had a life insurance policy on him at start of enployment in 1978.the policy product is called [life paid up at age 65-mutual.the beificary was his employer. he was fired in 2011 . in 2011 his prior employer signed over the insurance policy to him. he recieved with it in feb 2012 a 1099 misc form for the sum of $34000. is this legal? he also got from irs cp2000 notice this year. upon calling the woman from irs he was asked if he recieved monitary.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

A life paid-up at 65 is NOT necessarily an endowment (which WOULD be taxable) ... It DOES turn exactly on what the IRS agent asked, whether it endowed and he got a check or it's simply paid-up, (which means that he has a paid up life insurance policy on himself that will pay a beneficiary upon is death)

NPVAdvisor :

I see you're typing. I'll wait

Customer:

he was told the dividend is paying the policy now . he is age 60

NPVAdvisor :

That's right. The policy is has been put on a dividend option that pays the cost of insurance (the pure cost to keep the premium in force until he dies), ......... SO, it is NOT taxable to him as what's called an endowment.....

NPVAdvisor :

Do you know what the death benefit is?

Customer:

the face amount of the policy is 50000

NPVAdvisor :

Do you know anything about the terms under which they "signed over the policy" to him for example, was he allowed to change the beneficiary? If so, and he became the owner of the policy AND the contract was part of a non-qualified deferred compensation plan, the this could be legitimate..... under non-qualified deferred compensation plans the taxation is deferred until paid out and THE when paid out the employee can be liable.... HOWEVER if the policy is in force and there has been NO cash withdrawn that can complicate things even further ........... Very important question: Has he received and CASH from the policy?

Customer:

the woman at irs .said he would have to go to former employer and get something in writing stating he did not recieve monitary .the former employer is 2nd generation owner my dad was fired after 39 years of service and really is trying any other way than to have to go back there

NPVAdvisor :

So the answer is no? ... no cash received?

Customer:

no cash recieved and was allowed to change benificary .the policy is now in his name

NPVAdvisor :

If he never received anything monetary ... he DOES have recourse .... The 1099 was done in error (maybe even with malice)

NPVAdvisor :

He needs to follow a procedure for what's called a 1099 complaint

NPVAdvisor :

Just a sec and I'll get that for you

Customer:

thank you

NPVAdvisor :

Step 1: He does have to show that he made an effort to get the company to correct the 1099: "Contact your employer to notify them of the error and request a corrected 1099 form. You may need to speak with your boss, the accounting department or payroll. It helps if you have kept all of your payroll stubs or have bank statements showing all of the company's direct deposits into your bank account." .... Given your situation I would just send a certified letter, return receipt requested (so you can show that they received the request) (or Fedex or any other service where yu can get a copy of the delivery notification)

NPVAdvisor :

Step2: Contact the IRS after February 15 of the current year to report the problem with your 1099. You can contact the IRS toll-free at 1-800-829-1040. Tell thewm that you want to file a 1099 complaint. That your employer will not rectify an error

NPVAdvisor :

(Have your employer's name, complete address, employer identification number and telephone number and your own information, including Social Security number, on hand for the phone call)

NPVAdvisor :

Step 3: When you do this, IRS will sent a letter to the employer requesting that they submit a corrected form to you within 10 days. You will be sent a letter with a Form 4852 and instructions for filling it out.

NPVAdvisor :

Step 4: If your employer doesn't send you a corrected form you'll be able to use the Form 4852 instead

NPVAdvisor :

Hang on, looks like that link didn't work just a moment

Customer:

given the information i have given you.do you feel certian he should not be responisble for any taxes at this time . if im not mistaken the only taxes owed will be if he cashes out the policy correct?

NPVAdvisor :

That is correct .... He IS NOT responsible for anything until he withdraws money from the contract (the policy) ... and he may be able to borrow against the contract as well.... It will only be if the policy lapses before his death that any taxes will be owed ... as long as the policy does not lapse, there will be no tax liability

Customer:

i thank you very much for your help. my father as well. he will sleep well tonight thanks again

NPVAdvisor :

You are very welcome

NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question

Customer:

do i have to save and exit or can i do that after rating i do not want to lose the steps you put together?

NPVAdvisor :

It wll all stay... once you rate the questions will always be here for you... Also, you can just bookmark this url, and as another option here's the url, to copy and paste into a document:http://www.justanswer.com/tax/7whp9-writting-behalf-father-trying-help-him-his-prior.html

NPVAdvisor :

one more thing that may help ... I'll move us to "Q&A" mode, you can see the whole thing better that way I'm told.

NPVAdvisor :

DO let me know if you have other questions thought ... here we go:

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3919
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 1 year ago.

Hi Rich, you'll not the step process about half-way down the page there.

Sleep well

:)

Lane
Expert:  Lane replied 1 year ago.


Thanks so much Rich.

If I can help again, let me know

Lane

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