"alex turchina" <aturchin45[at]hotmail.com> writes:

- quote -

NO!!!! This article refers to variable annuities only!!
Here is Revenue Ruling 61-201:

http://www.taxlinks.com/rulings/1961/revrul61-201.htm

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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alex turchina wrote:

- quote -

The article is not discussing stock. It is discussing how
to account for a loss one sustains if disposing of a
variable annuity whose value has dropped below the
investment cost. There are only two solid facts in the
article: 1. A loss sustained on disposing of the annuity is
deductible and 2. Use an accountant as your blocking
fullback.

Rev. Ruling 61-201 states that just as a gain on a refund
annuity is ordinary income, a loss on the annuity would be
an ordinary loss. It does not say where the loss is
reported on the tax return. Some tax professionals take the
position that the loss can be entered on Form 1040 Line 14,
Other Income. Other professionals take the position that
the ordinary loss is only deductible on Form 1040 Schedule A
where other types of ordinary losses are deducted. In
addition, some professionals take the position that any
surrender charge can not be included in the loss and others
state that it can be included as part of the loss. As far
as I am aware, the IRS has not released any type of ruling
nor have the courts taken a position on this issue.

The best advice I have for you is to find a professional who
is willing to support a position consistent with your own
risk profile.

--

Alan
http://taxtopics.net

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On Thu, 04 Dec 2003 06:10:41 -0000, "alex turchina"
<aturchin45[at]hotmail.com> wrote:

- quote -

I think you need to read the article again. It talks about
annuities and not about stocks. The subheadline is:

Commentary: Time to cash in your variable annuities?

I suggest you read the last line of the Rev. Rul. several
times. The strategy in the article for annuities is trying
to expand this very old ruling limited to refund annuities
onto the entire universe of annuity products. There is
quite a bit of risk here and you should follow the article's
recommendation to get personal *paid* advice from a
qualified professional before proceeding down this path.

Here is Rev. Rul 61-201:

SECTION 165.--LOSSES

26 CFR 1.165-1: Losses.
(Also Section 72; 1.72-11.)
In determining the amount of loss sustained by the original
purchaser upon his surrender of a single premium refund
annuity contract for a cash consideration, the basis of the
contract is its cost, less the amounts previously received
under the contract which were properly excluded from the
gross income of the recipient under the law applicable at
the time of receipt. The excess of the basis, thus
determined, over the amount received upon surrender of the
contract constitutes an ordinary loss.
I.T. 3567, C.B. 1942-2, 105, modified.

[Text]

Advice has been requested with respect to the method of
computing the basis of a single premium refund annuity
contract for the purpose of determining the amount of loss
sustained by the original purchaser upon his surrender of
the annuity contract for a cash consideration.

The taxpayer purchased a single premium refund annuity
policy for 25x dollars. In 1956, he surrendered the policy
for a cash consideration of 10x dollars. The annuity
payments received during prior years totaled 15x dollars of
which 7x dollars were excluded from gross income under the
law applicable at the time of receipt.

I.T. 3567, C.B. 1942-2, 105, holds, insofar as pertinent
here, that the amount of a loss allowable upon the surrender
of a single premium refund annuity contract, is the cost
less the aggregate of the amount received on its surrender
plus all other amounts received under the contract by the
annuitant. Under I.T. 3567 no distinction is made between
annuity payments which were included in the annuitant's
gross income when received and annuity payments which were
excluded from the annuitant's gross income.

Section 1.72-11(d)(1) of the Income Tax Regulations
promulgated under section 72 of the Internal Revenue Code of
1954, provides, in part, as follows:

Any amount received upon the surrender, redemption or
maturity of a contract to which section 72 applies, which is
not received as an annuity under the rules of section
1.72-2(b), shall be included in the gross income of the
recipient to the extent that it, when added to amounts
previously received under the contract and which were
excludable from the gross income of the recipient under the
law applicable at the time of receipt, exceeds the aggregate
of premiums or other consideration paid. * * *

It is clear that the contract under consideration is one to
which section 72 of the Code applies and that the 10x
dollars received by the taxpayer, upon surrender of the
contract, was "an amount not received as an annuity" under
section 72(e) of the Code. It is likewise clear that, where
the transaction results in a loss, the same treatment should
be afforded the taxpayer as is afforded where the
transaction results in a gain. Further, the amount of 7x
dollars excluded from gross income in the instant case
merely represents a recovery of "basis" (investment) for
which adjustment is required under section 1016(a)(1) of the
Code, which provides, as far as here pertinent, that proper
adjustment in respect of property shall in all cases be made
for receipts properly chargeable to capital account.

Accordingly, in determining the amount of loss sustained in
the instant case by the original purchaser upon his
surrender of a single premium refund annuity contract for a
cash consideration, the basis of the contract is its cost
(25x dollars) less the amounts previously received under the
contract which were properly excludable from the gross
income of the recipient under the law applicable at the time
of receipt (7x dollars). The excess of the basis thus
determined (18x dollars) over the amount received upon
surrender of the contract (10x dollars) constitutes an
ordinary loss (8x dollars).

I.T. 3567, supra, is modified to remove therefrom the
implication that the entire amounts of the annuity payments
received by the annuitant are deducted from his cost of the
annuity contract in computing the amount of loss sustained
upon its surrender.

Nothing in this ruling should be construed as permitting a
loss deduction on the surrender of any contract other than a
refund annuity.

--- end quoted text

Drew Edmundson, CPA (NC)
e-mail is my first name at nccpa dot com

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On CBS MarketWatch "end-of-year" tax loss selling", link
below the following is stated. Can one deduct stock losses
exceeding $3000 in one year as stated below?

http://cbs.marketwatch.com/news/story.asp?guid={D9090BF4-1580-468C-B9BB-63B3D4ECE9B5}&siteid=mktw

"You should review this tax strategy with your tax advisors
to decide whether to deduct 100 percent of your losses
against ordinary income as "Other Gains/Losses" on Line 14
of your Form 1040 or to deduct them as miscellaneous
expenses subject to the 2 percent of adjusted gross income
(AGI) exclusion and possibly the alternative minimum tax
(AMT).

Deducting 100 percent avoids both the 2 percent of AGI
exclusion and the possibility of triggering the AMT and is
based on Revenue Ruling 61-201 (ask your accountant). Taking
the second more conservative strategy only risks the
possible AMT."

Alex

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