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September 11, 2008
MORE FREE CASH FOR SENIORS
I don’t have to tell you about the huge increases we have seen in fuel costs, and how that has caused many other items to go up in cost. So, it’s my pleasure to inform you of two ways for you to get some free cash to offset those increases.
First, is the ever popular Massachusetts Senior Circuit Breaker Credit. This is free money that the Massachusetts Department of Revenue will send you, if you fill out a Massachusetts income tax return. Although this program started in 2001, many people are still unaware of it.
The second source of free cash is also tax related and is aimed towards anyone who ever owned a life insurance policy with MetLife, John Hancock, Prudential, or any of the other 31 life insurance companies who have demutualized.
Demutualization means that the life insurance companies, that were owned by the holders of their life insurance policies, issued common stock to policy holders. Policy holders had the option of selling their stock and receiving cash, or keeping the stock. Now, instead of the policy holders owning the insurance company, the shareholders now own the company.
When this demutualization occurred, and you sold your stock, both the IRS and the insurance companies told you that what ever you received in cash was taxable because your cost for the stock that you sold was zero.
On August 6, 2008 Judge Allegra from The United States Court of Federal Claims decided differently. In this case, the Nagan Irrevocable Trust purchased life insurance from Sun Life Insurance Company and paid the premiums for 10 years, at which time Sun Life demutualized and issued stock to the trust. The Trust sold the stock and reported the entire proceeds of $31,759 as income according to the IRS and Sun Life instructions. Later, the Trust filed an amended income tax return to claim a refund of $5,725, the taxes related to the sale of the stock. Judge Allegra decided that there was no gain on the sale and ordered a refund of all of the taxes related to the sale of the stock.
WHAT SOULD YOU DO? – If you sold the stock of any insurance company that demutualized, you should file an amended Federal and Massachusetts income tax return to claim a refund of the taxes that you paid due to the sale of this stock. The statute of limitations has closed for tax year 2004 and earlier. If you sold this stock in 2005 or later, you should file an amended tax return to claim your refund.
The other good news about Free Cash For Seniors is the announcement last week by the Massachusetts Department of Revenue. They have increased the amount of the Senior Circuit Breaker refund to $930 for tax year 2008, up from last years amount of $900.
This means that regardless of whether you have any tax withholdings or any payments of tax, you will receive up to $930, by simply filing a Massachusetts income tax return. You must be age 65 or older and either own or rent your primary residence. In January, at the beginning of tax season, I’ll be explaining this in more detail.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org