Annuity Cost Basis

[Joel]

Back in the 1980's both my wife and I invested in Fidelity mutual fund accounts.  There was one account that my wife opened called 'Fidelity Variable Annuity' marketed as "Fidelity Income Plus".  The account was managed by Fidelity Investments but issued by Pacific Fidelity Life Insurance Co.  (Yes we both knew it was a variable annuity and it was not a retirement account.) In 1998 it was 1035 exchanged to a Kemper Gateway Annuity where it stayed to 2015.

In September 2015 my wife passed away and as beneficiary I received the death benefit.  I asked that 10% of the taxable amount be withheld.  When I received the distribution I noted that it was taxed at 100%.  

Since then I have been trying to get the cost basis.  Pacific Fidelity Life Insurance Co. was merged into Transamerica Insurance Co.  They claim they have no records back that far(1998).  Because the original investment was through Fidelity Investments I have contacted them.  They claim no accounts or names like "Fidelity Income Plus" have been issued by Fidelity Investments.  I just got off the phone again with Kemper and they are sending copies of the paperwork that they received from Fidelity Investments back in 1998 but the cost basis was blank.  Once I receive this I will again contact Fidelity Investments.

Now the 1099R has been issued and is fully taxable. If I am not successful with getting a cost basis from Fidelity (or Pacific Fidelity Life Insurance Co.) are there any other suggestions this community suggests?

 Anyone at the IRS I might contact to negotiate a cost basis?  

 

[Catherine]

Do you have any of the annual year-end Fidelity statements showing your contributions?  Bank statements showing checks/auto-debits?  If you can reasonably created that basis I would.  Perhaps a Line 21 negative adjustment for "annuity basis adjustment" with a disclosure statement.

[Roberts]

I don't believe the IRS will negotiate a cost basis because you are required to have documentation proving your cost basis or your basis is $0. That's what I was taught in my EA training

Did you take a total distribution?

Did you take a distribution on one of those early transfers? It could have been that you distributed your entire original cost basis and it was all gains rolling forward from there on out. Annuities purchased in 1982 and before have different tax rules that would have been realized upon the first rollover or a distribution. If you took a distribution on one of those early annuities - it's very possible you used up the initial cost basis to avoid paying tax and have forgotten you did this. Things are different today than they were back in 1982.

[Joel]

1 hour ago, Catherine said:

Do you have any of the annual year-end Fidelity statements showing your contributions?  Bank statements showing checks/auto-debits?  If you can reasonably created that basis I would.  Perhaps a Line 21 negative adjustment for "annuity basis adjustment" with a disclosure statement.

If I remember correctly my wife received a bonus of $20,000 one year and that is what was put into the annuity.  I don't remember any other contributions.  As for records, I have our tax returns back to 1956 but did not keep the Fidelity statements once 5 years had passed after the 1998 1035 exchange to Kemper.  I have the 1998 1099R from PFL Life Insurance Co. showing the code 6 distribution, but of course box 2a was zero and box 5 was blank. I like you line 21 adjustment concept.  Will wait to see the actual papers that was received from Fidelity by Kemper at the time of the exchange.

[Randall]

This doesn't help your situation but a reminder to clients to keep all their annual statements for annuities and insurance policies.  With these companies merging so much, it may be impossible to get a history of your accounts.