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Author: mwad Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121482  
Subject: Confused by the JTWOS Date: 3/27/2000 9:27 PM
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I have a complex problem for next year and thought I would start figuring out the solution now.

Facts:
1) My wife and her mother had a mutual fund set up as a JTWOS account over 10 years ago. The money for the initial investment came from my wife's grandmother.

2) My wife's mother is the first name on the account although our address is the address of record on the account.

3) My wife cashed in the entire fund recently with a sizable capital gain.

Questions:
1) Who is responsible according to the IRS for the capital gains tax? Based on my review of the government publications and discussion on the boards I think that the 1099 will be sent to my wife's mother at my address (confusing I know) because the IRS only seeks one payee and she is listed on the account first.

2) What is the term "backing it out"? I have seen that mentioned a couple of times and it seems as though it might be a way that my wife can get socked with taxes.

3) Does the address of record have anything to do with the responsibility for capital gains or just the order of names on the account?

Thanks for any help!
mwad
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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32736 of 121482
Subject: Re: Confused by the JTWOS Date: 3/27/2000 9:37 PM
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<< I have a complex problem for next year and thought I would start figuring out the solution now. >>

Bless you. Most people wait until the last minute.

<< Facts:
1) My wife and her mother had a mutual fund set up as a JTWOS account over 10 years ago. The money for the initial investment came from my wife's grandmother.

2) My wife's mother is the first name on the account although our address is the address of record on the account.

3) My wife cashed in the entire fund recently with a sizable capital gain.

Questions:
1) Who is responsible according to the IRS for the capital gains tax? Based on my review of the government publications and discussion on the boards I think that the 1099 will be sent to my wife's mother at my address (confusing I know) because the IRS only seeks one payee and she is listed on the account first. >>

The owner is responsible for the taxes. You told us who funded it and whose names were on the account, but you didn't tell us whose money it was. Evidently it was your wife's, since she sold the funds, so it's her tax liability.

<< 2) What is the term "backing it out"? I have seen that mentioned a couple of times and it seems as though it might be a way that my wife can get socked with taxes. >>

If indeed your wife was the owner of the account but your mother-in-law's name and SSN were first on the account, the fund will issue the 1099 to your mother-in-law. (The address is irrelevant.) In this situation your mother-in-law is a nominee for your wife and will issue your wife a 1099 passing the transaction to her. This is sometimes referred to as "backing it out" of your mother-in-law's return. Your wife isn't getting socked with anything other than tax on her income.

<< 3) Does the address of record have anything to do with the responsibility for capital gains or just the order of names on the account? >>

Neither. Ownership is what matters.

TMF ExRO
Phil Marti

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Author: mwad Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32748 of 121482
Subject: Re: Confused by the JTWOS Date: 3/28/2000 12:11 AM
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One more question about the tax liability. The payment was made to both my wife and her mother. The money was deposited in my wife's account. Does that influence the liability at all?

I am obviously not attempting to avoid taxation, just attempting to get the planning straight for this time next year.

Thanks,
mwad

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32758 of 121482
Subject: Re: Confused by the JTWOS Date: 3/28/2000 6:05 AM
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<< One more question about the tax liability. The payment was made to both my wife and her mother. The money was deposited in my wife's account. Does that influence the liability at all? >>

It's another indicator that this was your wife's money. I think you're making this too hard. Who ended up with the proceeds? That's who pays the tax.

TMF ExRO

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