Dick Weaver <rweaver[at]ix.netcom.com> wrote:

- quote -

Correct, you are cash basis.

- quote -

Prudential shouldn't file the 1099 like this, unless you all
entered into a new contract, and that stipulated the payment
for the first year be calculated differently.

Get a corrected 1099 set from Prudential, or make them pay
for someone to fix all of your returns and sort it out by
year.

This is not a "right to receive" vs. "receipt" question.
Consider this situation:

What if Prudential had simply failed to issue you a 1099 for
several years, and then tried to issue you a single
"catchup" 1099? I think you would agree that is not
allowed. That is basically what happened here, becuase of
Prudential's bookkeeping error.

Now, my opinion changes greatly if they actually send you
the interest each year, and don't merely report it.

bex

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Ed Zollars, CPA wrote:
- quote -

Consider the following two examples:

1. I (cash based) make a loan to a friend (cash based).
Interest is due Dec 2003, he pays late, in 2004. What
year do I record the interest income?

2. I (cash based) make a loan to a friend (accrual)
Interest is due Dec 2003, he pays late, in 2004. What
year do I record the interest income?

I think my friends have very different records for their
payments, but in both cases I record interest in 2004. In
both examples my right to 2003 interest is clear, but it
didn't happen until 2004.

With Prudential the obligation to pay never went away, as
you noted. But the actual payment wasn't made until 2003.
Do 1099s record obligations or payments? Why can Prudential
file 1099s as if payments they made late had been made on
time?

thanks
dick w

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Dick Weaver wrote:

- quote -

Sounds really horrible, esp as far as the Pru is concerned.
I'm almost tempted to say "Get Met! It pays." and draw a
cartoon of snoopy. But I won't.

If you'd had the policy for a while, even in 1996 maybe you
received a 1099-int? and didn't notice the omission from
1997 onwards, the onus is on you. (I think I spelled that
right.) You would have been put on notice that something
was awry.

Meaning of course, that you properly earned said interest in
those years. Depending on the amount of the interest it
might not even make a difference. All those 1099-int I see
are for such small amounts.

but if significant, need to amend for years 2000 onwards.

Cheer$,
Harlan Lunsford, EA n LA

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Dick Weaver wrote:

- quote -

The policy *did* exist, Prudential just didn't believe it
did. Remember, a policy is actually just a contract between
the insurer (Prudential) and the owner of the policy. That
right did not change merely because Prudential fouled up
their books and paid out an amount based on that contract to
a third party--as was made clear when they reestablished the
account on their books.

So your right to the interest wasn't impacted (had you
inquired at that point and asked the policy be cashed out,
you would have received it), therefore it appears you were
just as much "in receipt" of that interest as you would have
been had Prudential not fouled up their records.

--
Ed Zollars, CPA
Phoenix, Arizona

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In early 2003 we asked Prudential for the current value of
an insurance policy on my wife. It was discovered that
Prudential had changed the SS number and address on the
policy and had cashed out the policy to someone else back in
997. They didn't seem too concerned about having done this,
but did reestablish the policy in our name.

They sent us 1099-int forms indicating they had paid
interest in 1997, 1998, 1999, etc. It's to my benefit, tax
wise, to believe they paid all that interest in 2003, that
Prudential failed to distinguish between the computation
(for each year) and the payment (all in 2003).

Maybe this is a real constructive receipt question - can
interest that I received (in the computation of the policy's
current value) in 2003, on a policy that didn't exist in
1997-2002, be taxable income for the years 1997-2002?

thanks
dick w

And if you are interested in Prudential's level of
competence - they also reported this income to Arizona. I
live in California, the Arizona address is where the policy
was incorrectly cashed out!

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