Your client was the beneficiary of an annuity contract purchased by her stepmoth
ID: 1219899 • Letter: Y
Question
Your client was the beneficiary of an annuity contract purchased by her stepmother. When the stepmother died, the insurance company paid the client $400, 000 and sent her a Form 1099 indicating that the taxable portion (i.e., the amount in excess of the investment in the contract) was $50, 000. However, according to the client, her father fraudulently convinced her that he was the intended beneficiary. She gave her father a check equal to the amount she had received from the insurance company. She did not report any of the annuity proceeds in her income tax return. She later discovered the fraud and filed a lawsuit to collect from her father. The IRS has examined your client's return and has taken the position that she must include the $50, 000 in her gross income. Evaluate the IRS's position.Explanation / Answer
In the question, the IRS position is correct and the client must include $ 50,000 in her return. It is clearly identified that the client was intended beneficiary, which was confirmed by Insurance company who paid her a check of $400,000 and also sent Form 1099, indicating the taxable portion of $ 50,000. Form 1099 is type of information return which you get if you received certain types of income during the year. The specific income has to be reported in the form 1099 return.
It is clearly mentioned in the question that her father has fraudulently convinced her that he was the intended beneficiary. And, this was later discovered by her also for which she has filed a lawsuit to collect from her father. This is a contract of social nature. So, he is supposed to include $ 50,000 in her Gross total income and the IRS position is correct.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.