There seem to be two theories on claiming losses on the surrender of variable annuities. The conservative one says to take them on Sched A subject to 2%, and the more aggressive to take them on 4797 and lowering AGI in full. Rev Ruling 61-201 and 72-193 are referenced, and I have read them both, but they are each slightly off point.
Do any of you have experience with claiming these losses, and can you share what you thinking and decision was?
Depends on how you surrendered it. If by sale or involuntary conversion, then the capital route may be appropriate. If by payout exhaustion, then the Schedule A route may be appropriate.
I have not read the RRs you cited.
I have used the 61-201 route and claimed the loss on 4797, which the IRS accepted on the original return. There was no notice, no audit, no nothing - they simply accepted it. I relied on the items outlined in 61-201 as they pretty closely matched my client's fact pattern.
Which option is correct for you needs to be determined based on the facts and circumstances of your particular situation. If you're not a pro, you should go see one. The fee you pay for his opinion should give you some piece of mind.
Good luck, Gene E. Utterback, EA, RFC, ABA
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