Client wishes to keep life insurance withdrawal and 1099-R from husband...

Feb 8, 2012
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Last year I had a client take a partial withdrawal from a life insurance policy to payoff a loan she had taken from the policy years prior. She elected not to have federal income tax withheld. I have since found out that she feels the need to keep her husband ignorant of her taking the loan and subsequent withdrawal from the policy. The reasons behind this are none of my business, although I believe her motives are pure. She is making additional payments to get the policy’s cash value back to where it would have been had she never touched it, but it sounds like if her husband became aware of the situation there would be a great deal of unnecessary drama and hardship for her family.

Anyway, on to the question…

The taxable amount from her partial withdrawal was under $300 and she received a Form 1099-R reflecting this amount. Her husband handles all of the taxes, but she wants to know if there is any way for her to keep all of this from him. When I asked my manager about it, he suggested that I make it clear that I’m by no means recommending this course of action, but that she could just “lose” the 1099-R without any repercussions. Would you guys/gals agree with this?

My tax knowledge is very limited and I want to make sure that I don’t steer my client down the wrong path, so any feedback on the situation would be greatly appreciated!

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