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I have a 1099R form for a 1035 annuity exchange where there…

I have a 1099R...

I have a 1099R form for a 1035 annuity exchange where there is no taxable amount in Box 2a. How do I indicate this on my Form 1040 since just putting a 6 did not work for my AARP tax helper?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

The AARP helper said she did not know how to handle this.

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3/12/2018
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,629
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Hello!

My name is***** will assist you today.

Please give me one moment while I review your question and type my initial response

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You are correct to place the non taxable amount on line 16a and then leave 16 b blank, which reflects the taxable amount of zero.

Please let me know your follow up questions.

Thank you

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Customer reply replied 4 months ago
You have not answered my question.

Q: How do I indicate this on my Form 1040

A: Annuity distributions are indicated on line 6a and 6b

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If this was not your questions please let me know what your specific question is.

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Customer reply replied 4 months ago
I went to the AARP site to have my taxes prepared as I always do. My annuities do not usually change hands. This year they did. The AARP advisor put a 6 in the appropriate box indicating a 1035 transfer on the tax form, and the site indicated she needed to put something more. I read the IRS instructions, and they indicated there was a letter that should accompany the number 6. What is that letter?
Customer reply replied 4 months ago
I am still waiting for a response.

Thank you for your patience

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There is not a letter that accompanies the tax return.

you may have read Private letter rulings from the IRS concerning 1031 exchanges. I have included a link and relevant excerpt below.

https://www.irs.gov/pub/irs-wd/1330016.pdf

"Section 1035(a)(3) provides that no gain or loss shall be recognized on the exchange of an annuity contract for an annuity contract. Section 1035(b)(2) defines an annuity contract for purposes of § 1035 to be a contract of endowment insurance (i.e., a contract with an insurance company which depends in part on the life expectancy of the insured, but which may be payable in full in a single payment during his life) but which may be payable during the life of the annuitant only in installments. Section 1.1035-1 of the Income Tax Regulations provides that the exchange, without recognition of gain or loss, of an annuity contract for another annuity contract is limited to cases where the same person or persons are the obligee or obligees under the contract received in exchange as under the original contract. The House Committee Report to the Internal Revenue Code of 1954 indicates that § 1035 was designed to eliminate the taxation of individuals “who merely exchanged one insurance policy for another better suited to their needs and who have not actually realized gain.” H.R. Rep. No. 1337, 83rd Cong., 2nd Sess. 81 (1954)."

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Customer reply replied 4 months ago
You have misunderstood. The letter is not correspondence. It is an alphabet letter that accompanies the number in the box,i.e. 6w.

Here is the instructions for line 16

"Enter the total pension or annuity payments (from Form 1099-R, box 1) on line 16a. If your Form 1099-R doesn't show the taxable amount, you must use the General Rule explained in Pub. 939 to figure the taxable part to enter on line 16b. But if your annuity starting date (defined later) was after July 1, 1986, see Simplified Method, later, to find out if you must use that method to figure the taxable part

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Customer reply replied 4 months ago
There is no taxable amount listed on the 1099R in line 2a.

Distribution code for 1035 is 6

"Section 1035 exchange (a tax-free exchange of life insurance, annuity, or endowment contracts)"

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Right, there is not a taxable amount on line 2a, because you did a 1035 exchange

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Customer reply replied 4 months ago
why is the IRS not accepting that on the form...see guide to distribution codes on IRS Form.
Customer reply replied 4 months ago
The w is indicated in those instructions.

Maybe there is an issue with the tax prepares software or the way it is being imputed.

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Customer reply replied 4 months ago
The AARP aide was tryinh tomfile electronically.
Customer reply replied 4 months ago
The AARP aide was trying to file electronically.
Customer reply replied 4 months ago
Are you saying that no letter w is indicated? Would Turbo Tax be of help to me?
Customer reply replied 4 months ago
What does "the way it's being inputed" mean?
Customer reply replied 4 months ago
I watched her type in the information.

There could be a "w", which doesn't' make the transfer taxable.

In the instructions for the 1099

"Use Code W for charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements which are excludable under section 72(e)(11) against the cash value of an annuity contract or the cash surrender value of a life insurance contract."

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The "w" also doesn't change how you put the information on a tax return.

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Customer reply replied 4 months ago
I am as confused as I was when I began ...you are telling me that the box only requires a 6, and that there is software that prohibits this?
Customer reply replied 4 months ago
If the "w" were necessary on the return, it would have been on the 1099R; it would not just appear on the return if it were not already on the 1099R ??

I am not saying anything about the software that the AARP rep is using.

I am instructing you how to complete your taxes. Technically, you only place the amounts on line 16a and 16b if applicable when you complete an annuity 1035 exchange.

If you look at page one of the 1040 you will see "pensions and annuities" 16a ----- b taxable amount

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The 1099 is an informational return for your records-- Not all of the information is used on your tax return.

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Customer reply replied 4 months ago
If I am not taxed on this exchange, do I need to report it at all? Should I just keep it for my records?

Yes, you report the total amount exchanged on line 16a

Since you performed a 1035 exchange you would leave 16b blank.

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Please click on the blue link below to view line 16 of the 1040

https://www.irs.gov/pub/irs-pdf/f1040.pdf

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,629
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified
Chad EA, CDFA®, CFP® and 87 other Tax Specialists are ready to help you
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Customer reply replied 4 months ago
The 1099R is just a worksheet tool?
Customer reply replied 4 months ago
I should include the total amount with my other annuities on line 16a: but since it is not taxable, it need not be included in the worksheet figures ,right?
Customer reply replied 4 months ago
Thank you.
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