Advanced Underwriting Consultants

Question of the Day – December 6

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client took a distribution from her nonqualified deferred annuity (NQDA) and now wants to re-deposit it into the contract.  She hopes to avoid an income tax result on the distribution.  I’ve worked with one carrier that will treat money re-deposited within 30 days as never having been distributed for Form 1099 purposes.  However, the current carrier insists that they will issue a Form 1099 showing a taxable distribution.  Who is right?

Answer: If the annuity were an IRA, the client would generally have 60 days to re-deposit the money into the same contract and avoid an income tax event.  That procedure is sometimes referred to as a 60 day rollover.

NQDAs do not have any equivalent tax-free re-deposit window.  The IRS has consistently taken the position that once the taxpayer receives a distribution from a NQDA, the taxpayer recognizes the income tax result associated with the distribution.

The second carrier’s approach to Form 1099 reporting purposes seems correct.  Even though the first carrier does not issue a Form 1099 when money is re-deposited, it still seems like the distribution is taxable.

The IRS maintains that it’s the taxpayer’s responsibility to report taxable income correctly, even where other parties do not.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.