Low Income Taxpayer Clinic
Mr. M., a senior citizen sold his home and placed the profits of $30,000 into an annuity. The sale was reported on his 2011 income tax return. He and his wife had no other savings. In 2012 his wife became ill and he needed a lump sum to pay for her care. He took all of the money out of the annuity. The distribution was not taxable income. However the financial management company mischaracterized the withdrawal as taxable. As a result Mr. Jones received a notice that he owed the IRS $3000 in additional taxes. He paid the bill with the money that was left after he paid for his wife’s medical care. Mr. Jones did not understand why he owed taxes to the IRS. He consulted with the LITC. The clinic director agreed that the distribution should not have been characterized as taxable income. She was able to get the financial company to issue a corrected 1099-MISC form to the IRS and assisted Mr. Jones in making a refund claim. The additional taxes were abated. He received all of the money he paid back plus interest.