LTCI Watch: Mrs. Smith

By Allison Bell

Commentary September 15, 2014 at 12:50 PM

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The Internal Revenue Service (IRS) has put out the latest edition of one of the most widely read stories about a family and its private long-term care insurance (LTCI).

I'm talking, of course, about the vignette included in the draft version of the 2014 Instructions for Form 8853 – the reporting form for Archer Medical Savings Accounts and LTCI contracts.

The Form 8853 vignette has a Rashomon-like quality to it. In one example, Mrs. Smith was chronically ill throughout 2014 and got $24,000 in benefits for $54,750 in qualified long-term care (LTC) expenses.

In another example, her son, Sam, and her daughter, Deborah, each owns a qualified LTC contract that names Mrs. Smith as the insured. If Sam and Deborah get into a fight over the dates of the LTC contract period, then we get a plot twist: Each must use the contract period method to compute the taxes, rather than the equal payment rate method.

My first reaction is: Wow, doing taxes for LTCI coverage is complicated. It seems as if it ought to be simpler for people who took care of their own LTC needs, and their loved ones' LTC needs, to show the IRS how responsible they were.

The other reaction is that someone ought to do a movie about Mrs. Smith, Sam and Deborah. We have movies based on novels, comicbooks and the Tooth Fairy. Why not about characters in IRS form instructions? Maybe the IRS could option the rights to Hollywood and use the money to keep the Social Security Disability Insurance trust fund solvent for a few more days…

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