FORM 1099 REPORTING FOR PROPERTY INSURANCE PROCEEDS?

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
	Certified Public Accountant
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	It All Adds Up For You

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,