taxcpa wrote:Why not amend 2019 and 2020? They are still open years.
Amending is a possibility, but I'd like to avoid it. I didn't prepare the original 2019 & 2020 returns and they have other issues. Nothing egregious that would make me disengage, but I don't want to sign the amended returns if possible.
Even if amending is an option, the question posed by the client was how much of disability insurance benefit received should be included in taxable income given the facts described in #4. And this turned out to be a harder to answer than I anticipated.
Given the fact pattern, I think §1.105-1(d)(2) and the 3-year look-back rule would NOT apply here as it applies to group policies and we're dealing with an individual policy paid and deducted by the employer in some years and paid personally and not deducted by the employee in other years.
I think §1.105-1(d) may apply here
“If an amount is received from an insurance company by an employee under an individual policy of accident or health insurance purchased by contributions of the employer and the employee, the portion of the amount received which is attributable to the employer's contributions shall be an amount which bears the same ratio to the amount received as the portion of the premiums paid by the employer for the
current policy year bears to the total premiums
paid by the employer and the employee for that year.”
Reading §1.105-1(d) literally I question if any insurance proceeds need to be picked up in 2022 taxable income at all.
The disability occurred in 2022 and the insurance proceeds were started in 2022. If we look to 2022 only, there were no employer contributions for the policy. Same with 2021, no employer contributions, employee contributions only.
Am I way off in my interpretation of the regs?
I couldn't find any cases or rulings that deal with a similar set of circumstances.
If I'm off, my question still remains, HOW should the taxable amount of insurance benefit be calculated for 2022 and 2023?
