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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11372
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have Power of Atty 61 year old who is profoundly disabled

Customer Question

I have Power of Atty for a 61 year old who is profoundly disabled due to stroke on 10-6-2013, and who has lived full time in a care facility since that time. I now pay his bills for him. I cashed out a paid-up life insurance policy of his in 2015 to pay his bills, and he has received a 1099-R form from the Insurance company in the amount of the surrender value. However, the 1099-R shows the same amount in box 1 and box 2 (which suggests that the entire surrender value is taxable, which doesn't seem correct), and Box 7 shows Code '1', meaning 'Early' withdrawal. The withdrawal wasn't 'early', since he took it after age 59.5. I think the code in Box 7 should be '3' for disability, but I also think Box 2 should reflect a smaller taxable value, in order to subtract the amount of the premiums he paid in over the years. Am I correct in seeked these two corrections?
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: No that I'm aware of...
JA: OK. Got it. I'm sending you to a secure page on JustAnswer so you can place the $5 fully-refundable deposit now. While you're filling out that form, I'll tell the Accountant about your situation and then connect you two.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi, I can help here.

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You're absolutely right about this not being an early distribution, but given that this person is over age 59 and 1/2 code 7 (normal distribution) would be the correct code... Code 3 is used to indicate that the distribution is due to disability and is not subject to the 10 percent additional tax.

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On the amount, you can always call the life insurance company and they can tell you the basis (premiums paid in) ... Sometimes these older contracts can have a surprising amount of cash value over and above basis.

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One other thought; Previous loans having been taken against the cash value would have lowered the basis as well

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Let me know if you have questions

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Lane

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I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

Expert:  Lane replied 1 year ago.

P.S. Here's the information from IRS about getting the 1099 corrected.

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Topic 154 - Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)

If your Form W-2 (PDF), Wage and Tax Statement, and/or Form 1099-R (PDF), Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., are not available to you by February 1, 2016, or if your information is incorrect on these forms, contact your employer/payer. If by the end of February you still have not received the missing or corrected form, you may call the IRS at(###) ###-####for assistance. When you call, please have the following information available:

  • Your name, address (including ZIP code), phone number, and social security number,
  • Your employer/payer's name, address (including ZIP code), and phone number,
  • If known, your employer/payer’s identification number (EIN),
  • An estimate of the wages you earned, your federal income tax withheld, and your dates of employment.

After February, the IRS will contact the employer/payer for you and request the missing or corrected form. The IRS will also send you aForm 4852 (PDF), Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., along with a letter containing instructions.

If you do not receive the missing or corrected form in sufficient time to file your tax return, you may use Form 4852 to complete your return. If you receive the missing or corrected Form W-2 or Form 1099-R after you file your return and the information differs from your estimates, use Form 1040X (PDF), Amended U.S. Individual Income Tax Return. For additional information on filing an amended return, refer to Topic 308.

Expert:  Lane replied 1 year ago.

I hope this has helped.

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Please let me know if you have any questions at all.

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If this HAS helped, I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

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That's the only way I'll be credited for the work here.

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Thank you!

Lane

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I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

Customer: replied 1 year ago.
I used your service for the first time yesterday, asking one question about preparing a 2015 tax return for a disabled person, whom I assist. I have power of attorney for him and I pay his bills each month. You answered my presenting question satisfactorily, although your response does generate additional questions for me. However, I must ask a more basic question first about using this service. I came upon your service rather accidentally yesterday while looking for online detail about 1099-R forms. I assumed that I was paying you $5 to ask a question yesterday, but then during the inquiry process, I believe that the price may have gone up further, to either $33 or $38 for your response to that first question, if that's what I've already agreed to do by posting my inquiry. However, I don't see that any fee has been processed through my bank so far, so I'm confused. I need help in knowing how your pricing works for responding to these inquiries. I don't mind paying $33 or $38 for a few answers (or even for that first one) if that's what I've already agreed to (somehow), but I'm not interested in purchasing any ongoing service from you which would involve repeating monthly (or any other periodic) charges. Can I pay you only once and stop any further purchases? If so, (1), how do I do that, (2), what is the amount of that first fee, and (3), how many questions can I ask you for that amount? Thanks very much for your assistance. Grady Knowles,***@******.***,(###) ###-####
Expert:  Lane replied 1 year ago.

JA Customer Service: 1(###) ###-####/p>

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