Exchanged Annuity missing Cost Basis | Ed Slott and Company, LLC

Exchanged Annuity missing Cost Basis

Client has recently surrendered a nonQ variable annuity that was missing cost basis from an exchange years ago that occurred at a previous broker /dealer. Now the 1099 that the client received shows the entire amount taxable. We have tracked down the companies and tried to obtain the basis but there were three of them and one will not supply the information. We have documentation but the 1099 is still incorrect. Can the CPA use our documentation in place of the incorrect 1099? Thank you

That's up to the CPA. If the CPA was willing to report per client's documentation, they could attach a brief explanatory statement with the return regarding the difference in cost basis, and if the IRS wants more documentation, they could request it. 

If the payer will not correct the Form 1099-R to have blank boxes 2a and 5 and box 2b taxable amount not determined marked the Form 1099-R could be treated as incorrect and a substitute Form 1099-R (Form 4852) filed with the correct amounts and explanation.  However, it would make sense to try to dig up the past code 6 Form 1099-R reporting the 1035 exchange from the previous company which should show the cost basis.  Absent the code 6 Form 1099-R it might be more difficult to substantiate that the surrendered annuity was purchased through a 1035 exchange rather than a cash surrender of the previous annuity and the separate purchase of a new annuity.


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