Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Client was receiving disability payments of $500 per month, but passed away in August. Spouse received, but did not cash, checks for Sept. through Dec. Spouse says Aetna unwilling to change 1099. Amount flows to line 7, wages. Any way to fix this without Aetna's help that won't cause data mismatch letters from IRS?

Thanks in advance.

Foolish regards,

Vic
ancora imparo
Print the post Back To Top
No. of Recommendations: 1
Client was receiving disability payments of $500 per month, but passed away in August. Spouse received, but did not cash, checks for Sept. through Dec.

So the income was constructively received.

Spouse says Aetna unwilling to change 1099.

When did the client return the checks to Aetna? In 2009 or 2010? If the checks were not returned to Aetna until 2010, the 1099 is correct. The client would have a miscellaneous itemized deduction on their 2010 return for the amount that was returned to Aetna.

Amount flows to line 7, wages. Any way to fix this without Aetna's help that won't cause data mismatch letters from IRS?

Well, I don't think it's technically correct, but you could always put a negative amount on line 21.

--Peter
Print the post Back To Top
No. of Recommendations: 0
So the income was constructively received.

Hmm, payee was not alive to cash the checks so checks issued in error were not received by payee/decedent. Cash basis taxpayer - I don't see constructive receipt, but that doesn't mean the IRS won't.

When did the client return the checks to Aetna? In 2009 or 2010?

I believe checks were destroyed. I can see Aetna not wanting to correct 1099 with checks potentially still out there, yet to cash them would be fraudulent. Funny thing is they kept sending them until a month or so ago, even after repeated phone calls. I wonder if they will issue another 1099 for 2010.

Well, I don't think it's technically correct, but you could always put a negative amount on line 21.

Yes, that corrects total income, but a wage based credit is now off.

<sigh> It's May, and hay fever season, and my brain is wrapped up in unpleasant family matters. What's my name again? Oh yeah, I remember.

Foolish regards,

Vik
ancora imparo
Print the post Back To Top
No. of Recommendations: 0
Hmm, payee was not alive to cash the checks so checks issued in error were not received by payee/decedent. Cash basis taxpayer - I don't see constructive receipt, but that doesn't mean the IRS won't.

Just to play devil's advocate:
The executor of the estate (the spouse undoubtedly) did receive them, right?
And on decedent's behalf the spouse would have been able to cash a check from July if they had come across it in a drawer, right?
Doesn't it follow that there is constructive receipt?

If they were destroyed in 2009 (and who's going to prove they weren't unless they get cashed?), what then though?


So - what if the 1099 doesn't get corrected, and the IRS does send a letter saying it didn't match?
It'll take an hour or so to send a letter back saying "Aetna didn't provide an accurate 1099R. We asked them to correct it and they refused. Here's what happened..." and won't that likely be the end of it?
Print the post Back To Top
No. of Recommendations: 1
Just to play devil's advocate:
The executor of the estate (the spouse undoubtedly) did receive them, right?
And on decedent's behalf the spouse would have been able to cash a check from July if they had come across it in a drawer, right?
Doesn't it follow that there is constructive receipt?


Not necessarily. It sounds like these disability checks were supposed to end with the death of the husband. If neither the surviving spouse, nor the estate of the deceased, was entitled to them, then they were not negotiable by anyone, and it doesn't sound like they're income to anyone. If a check made out to somebody else magically appears in my mailbox, it is not my income.

If they were destroyed in 2009 (and who's going to prove they weren't unless they get cashed?), what then though?

Well, it was a mistake to destroy them. They should have been returned. Better yet, Aetna should have been notified when the first one showed up.

So - what if the 1099 doesn't get corrected, and the IRS does send a letter saying it didn't match? It'll take an hour or so to send a letter back saying "Aetna didn't provide an accurate 1099R. We asked them to correct it and they refused. Here's what happened..." and won't that likely be the end of it?

Except that the IRS seldom gives a favorable response to the taxpayer's first request to a notice - reading comprehension is a notable problem there - and even more seldom do they just take your word for it. Their implicit position is that 1099s are the gospel truth, unless you can PROVE otherwise. And that can be tricky.

Pet peeves of mine, since IRS correspondence is a lot of what I do in the month of May, after the nonprofit returns are due May 15.

Bill
Print the post Back To Top
No. of Recommendations: 0
Hmm, payee was not alive to cash the checks so checks issued in error were not received by payee/decedent.

More Hmmm. Checks payable to a decedent could certainly be negotiated by the decedent's estate. So we're back to constructive receipt, but by the estate and not the decedent. I think.

And that would mean the income on the 1099 should be apportioned between the decedent's final return and the estate's income tax return. But now we're back to a mismatch between 1099s and the return, which will generally generate correspondence.

And I haven't yet thought through the repercussions of not cashing the checks on a 1041.

Sorry, I don't have any good answers.

--Peter
Print the post Back To Top
No. of Recommendations: 0
I believe checks were destroyed. I can see Aetna not wanting to correct 1099 with checks potentially still out there, yet to cash them would be fraudulent. Funny thing is they kept sending them until a month or so ago, even after repeated phone calls. I wonder if they will issue another 1099 for 2010.

Aetna's level of incompetency is surprising. I have been through the drill of making death notifications a couple of times. Most of the pension payments were terminated within a week. At most there was one overpayment that had to be handled.
Print the post Back To Top
No. of Recommendations: 0
Aetna's level of incompetency is surprising. I have been through the drill of making death notifications a couple of times.

You're assuming Aetna was notified. I would not be surprised if Aetna was not notified of the death for several months.

Everyone handles the death of a loved one differently.

I'm just starting on the tax return for a client who pretty much shut down after his mother died. His 2007 tax return. He became very depressed and has taken almost three years to recover to the point of being functional again.

That's a bit unusual, I'm sure. But taking several months to notify all the appropriate parties after the death of a spouse would not surprise me at all. And if the notification didn't happen until 2010, Aetna is probably taking a conservative, but reasonable, approach to the 1099.

--Peter
Print the post Back To Top
No. of Recommendations: 0
Hmm, payee was not alive to cash the checks so checks issued in error were not received by payee/decedent.

More Hmmm. Checks payable to a decedent could certainly be negotiated by the decedent's estate. So we're back to constructive receipt, but by the estate and not the decedent. I think.


That would be my position. Anything paid after the date of death belongs to the estate and needs to be reported/corrected there.

And that would mean the income on the 1099 should be apportioned between the decedent's final return and the estate's income tax return. But now we're back to a mismatch between 1099s and the return, which will generally generate correspondence.

Maybe I've been fortunate, but I've never had a CP2000 document mismatch notice on a decedent's final return and the returns always have income reported to the decedent that is allocated to the estate.

Ira
Print the post Back To Top
No. of Recommendations: 1
I'm just starting on the tax return for a client who pretty much shut down after his mother died. His 2007 tax return. He became very depressed and has taken almost three years to recover to the point of being functional again.

That's a bit unusual, I'm sure.


Not as unusual as I wish.

Greetings from Kansas, where I appear in court today to get approval to administer the estate of a childhood friend who died April 6. He broke the longstanding family tradition of DIY estate planning and actually had a will. His forebears relied on joint tenancies and TOD accounts. His aunt died in February 2009 and everything went to him and his mother. His mother died Thanksgiving Day and everything went to him. His father died in 1999.

Armed with my letters testimentary the next stop will be Vital Statistics to get some copies of his father's death certificate. Why? Because his father's name is still on the house and several accounts. And my absolute favorite is the two 2009 1099-R's in his father's name and SSN. God alone knows what I'll find when I turn that rock over.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 1
TMFPMarti: "Greetings from Kansas, where I appear in court today to get approval to administer the estate of a childhood friend who died April 6. He broke the longstanding family tradition of DIY estate planning and actually had a will."

Phil, I am sorry for your loss. And you are a kind soul for undertaking to serve as executor.

Best wishes, JAFO
Print the post Back To Top
No. of Recommendations: 0
Maybe I've been fortunate, but I've never had a CP2000 document mismatch notice on a decedent's final return and the returns always have income reported to the decedent that is allocated to the estate.

Ira

=====================================
We've had them rarely. It really helps if you report the things like interest and dividends 1099 amounts in full on the Schedule B, and then subtract off the estate's or trust's portion. (Assuming the 1099s that have to get allocated are in the name and SS number of the deceased.)

Sometimes when it's a lot of things, we attached a worksheet laying it all out. That usually does prevent problems.

1099s issued to the estate normally aren't as much of a problem, because a lot of estates use a fiscal year, so the 1099s aren't matchable anyway.

Bill
Print the post Back To Top
No. of Recommendations: 0
Greetings from Kansas, where I appear in court today to get approval to administer the estate of ...

Oh Phil - not another one. I'm truly sorry to hear this. You've done more that your share of this work already. :-(

--Peter
Print the post Back To Top
No. of Recommendations: 0
You're assuming Aetna was notified. I would not be surprised if Aetna was not notified of the death for several months.

Everyone handles the death of a loved one differently.


You are right. The situations I have handled were deaths of relatives (by marriage), but "not loved ones." A few hours with the surviving spouse making the appropriate phone calls and as needed obtaining and sending copies of the death certificate avoids alot of problems and starts the process to obtain the life insurance proceeds. It is difficult, but I still believe appropriate.

Most of the customer service representatives were polite, understanding and efficient. Notes were taken for later review. I didn't expect that the spouse would remember much. It is only DFAS that I wanted to reach through the phone line to hurt them.
Print the post Back To Top
No. of Recommendations: 0
Conclusion

Original post:

Client was receiving disability payments of $500 per month, but passed away in August. Spouse received, but did not cash, checks for Sept. through Dec. Spouse says Aetna unwilling to change 1099. Amount flows to line 7, wages. Any way to fix this without Aetna's help that won't cause data mismatch letters from IRS?

Peter's suggestion to perhaps include the overpayment on line 21 was the most helpful, except that messed with a wage based credit that resulted in a refund that was too large, and undefendable. Believing that there must be a way, I poked around until I found a worksheet for line 7 that included a user defined line item. I don't know why I didn't find it before - I looked more than once - but distractions abound and I'm just glad I finally found it. I included the 1099 as received, and entered a negative amount on the detail line. I'm content with the result. While the IRS may still question the return, there will be no automatic data mismatch letter, everything appears defensible to me, and I didn't have to manually override the program - which often causes more problems than it solves.

I especially appreciated Bill's response that, while not offering a solution, nailed the explanation of the problem.

It sounds like these disability checks were supposed to end with the death of the husband. If neither the surviving spouse, nor the estate of the deceased, was entitled to them, then they were not negotiable by anyone, and it doesn't sound like they're income to anyone. If a check made out to somebody else magically appears in my mailbox, it is not my income.

and

Except that the IRS seldom gives a favorable response to the taxpayer's first request to a notice - reading comprehension is a notable problem there - and even more seldom do they just take your word for it. Their implicit position is that 1099s are the gospel truth, unless you can PROVE otherwise. And that can be tricky.

Pet peeves of mine, since IRS correspondence is a lot of what I do in the month of May, after the nonprofit returns are due May 15.


I was not asked to file an estate return, and I'm not convinced one is necessary. As to the true details and timing of communication between Aetna and spouse, I won't speculate. My auditing days are behind me. I either take my clients at their word or send them down the road.

Thanks to all who responded. This is a great forum and I appreciate the civil, helpful atmosphere. I had three clients, three friends and an in-law pass away last year - so having this resource is very helpful.

Foolish regards,

Vic
ancora imparo
Print the post Back To Top
Advertisement