FORM 1099 REPORTING FOR PROPERTY INSURANCE PROCEEDS?
(A
question asked recently of this blog)
Here is a
question that should not be asked. Why? Well it implies that the taxpayer who
asked the question is weighing the possibility of not reporting on a tax return
the insurance proceeds that were received in connection with a disaster loss
claim. I know from personal experience that after a major loss people are
angry, confused and in a state of psychological shock. I have seen it a number
of times and so the question may have been the result of that anger, confusion
and in a state of psychological shock.
Generally,
I have never seen an insurance company, in normal claim processing circumstances
of settling a casualty insurance claim issue a Form 1099. What that does mean
is that the insured must keep excellent records of all the claims and payments
made by the insurance company. In a disaster situation the tax reporting that
is necessary has three possibilities that are discussed elsewhere on this site.
Suffice it to say that it is possible that some insurance proceeds must be
acknowledged in a tax return, not necessarily as taxable income. Others are
recommended to be noted in a return for the year they are received.
It is
hard for most taxpayers to accept that while the Internal Revenue Code is
basically designed to collect taxes, this area of the tax law is structured to
help taxpayers recover from these catastrophic events. The tax laws are not a
replacement for insurance, but they are designed to stay out of the way as
taxpayers who have been disastered recover from the major loss that they have
experienced.
One last
thought: One of the reasons ask the question about 1099s in these cases is that
they are considering not properly reporting the proceeds. While the tax code in
this area is full of what I refer to as “carrots.” That does not mean that
there are no “sticks.” If the insurance proceeds that should be acknowledged in
a tax return are left off, then the normal three year period for reporting the
receipt does not start to run; this is call the statute of limitations. If the
proceeds are not reported the three year statute of limitations does not start
to run. In other words the return remains open for examination.
Your
specific situation should be discussed with a knowledgeable tax professional
before taking on the responsibility of filing a return for a disaster loss.
This blog,
“AccountantForDisasterRecovery.com” has been addressing taxpayer income tax
issues related to catastrophic losses for more than five years.
All rights to reproduce or quote any part of
the chapter in any other publication are reserved by the author. Republication
rights limited by the publisher of the book in which this chapter appears also
apply.
JOHN
TRAPANI
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Certified
Public Accountant
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2975
E. Hillcrest Drive #403
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Thousand
Oaks, CA 91362
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(805)
497-4411
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Contact us through our website at:
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Blog:
www.AccountantForDisasteRrecovery.com
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It All Adds Up For You
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This material was contributed by John
Trapani. A Certified Public Accountant who has assisted taxpayers since 1976,
in analyzing and reporting transactions of the type covered in this material.
Internal Revenue Service Circular 230 Disclosure
This
is a general discussion of tax law. The application of the law to specific
facts may involve aspects that are not identical to the situations presented in
this material. Relying on this material does not qualify as tax advice for
purpose of mounting a defense of a tax position with the taxing authorities
The
analysis of the tax consequences of any event is based on tax laws in effect at
the time of the event.
This
material was completed on the date of the posting
© 2013,
John Trapani, CPA,
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