annuity "exchange"

"Brew1" wrote

I think "6" is a tax free exchange.

Brokers screw up. Clients don't here everything that applies.

Trace it back to the broker to see what his or her records show the client wanted, then see if the broker can fix the problem (if indeed they need to fix it).

Quit obsessing about what's on the 1099-R's and figure out whether it was a taxable event or not. That will guide your return prep, not what's on the

And if this is a tax free annuity exchange that should have been reported as code 6, IRS Pub 575 Page 18 says this code 6 1099 does not even have to be reported on the 1040.

A good reason to get it corrected.

Otherwise I'd report it as a rollover, writing Rollover to the left of line 16 and not adding any amount to box 16b.

thanks to the moderator and others for the correction on the Box 7 code (I should know better than rely on my memory).

There is no possibility of a rollover in this case--the original annuities were purchased with non-retirement funds.

The broker has been unable (so far) to correct the problem. Without new 1099-R's, it would come down to qualifying as a like-kind exchange. I don't think it does, although I guess it might depend on an interpretation of "an integrated transaction"; to quote the IRS:

to qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction). Rather, in a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations.

But if these are annuities, annuities would not seem to qualify for like-kind exchanges. Pub 544, for example, rules out like-kind exchanges for nontangible nondepreciable personal property.

You're right; it's not a tax free exchange. If it had been, and therefore reported correctly, the salesman wouldn't have gotten a commission, if you get my drift.

ChEAr$, Harlan Lunsford, EA n LA

Annuities and life insurance contracts can qualify for tax free like kind exchange under IRC Section 1035, not 1031. One of the many requirements to make this happen is that the exchange must take place between the two insurance companies.

Complete details on 1035 exchanges can be found at:

at:

thank you. So, it comes down to whether or not the broker processed the transactions as per a 1035 exchange, rather than just an awareness it was possible for the exchange(s) to be tax-free. As Harlan hinted, he may have been more aware of his commission.

at:

Obviously I am not privy to any conversation between your client and his/her broker. If the client asked the broker to exchange the annuities and the broker sold and purchased new ones, then the client "may" have legal recourse against the broker.