Connecticut Congressional Delegation Members Receive Clarification from IRS on Captive Insurance Company, Tax Form 1099s for Homeowners with Crumbling Foundations
WASHINGTON, DC – Representatives Joe Courtney (CT-02) and John Larson (CT-01), and Senators Richard Blumenthal (D-CT) and Chris Murphy (D-CT), released a letter they received from the IRS confirming that the Connecticut Foundation Solutions Indemnity Company, Inc. (CFSIC) is not required to issue federal tax form 1099s to homeowners who have received assistance from CFSIC to repair their crumbling foundations.
“We are grateful for the response from the IRS providing clarity that CFSIC is not required under federal law and regulations to issue 1099 tax forms to those receiving this critical assistance to repair their homes,” the delegation said. “We urge all homeowners, however, to consult closely with their financial and tax professionals to fully understand how this assistance could impact their taxes.”
On August 28, 2019, CFSIC, the captive insurer created through state law to coordinate assistance claims from homeowners and distribute mostly state funds to qualified homeowners, wrote to each of the four Congressional delegation members seeking IRS clarification on whether it must issue Form 1099s to homeowners who received such assistance. The Congressional Delegation jointly requested an IRS response to CFSIC’s question in September, and followed up with a formal letter on November 4, 2019 when a response had not been forthcoming. Click here to read that letter.
The letter from the IRS confirms that, because CFSIC does not collect information that would allow them to determine a homeowner’s basis in their property, CFSIC is not required to provide homeowners with a 1099 form. Specifically, the IRS details that “a payor is not required to file or furnish a Form 1099 if the payor does not have a basis to determine the amount of a payment that the recipient should include in gross income.” Basis in property is a calculation that typically means the cost of the asset to the buyer, and may include settlement fees, closing costs, the cash paid for the property, and the mortgage on the property.
In addition, the letter states that “reimbursement for a casualty loss that a taxpayer does not deduct is generally not income to the taxpayer if the reimbursement does not exceed the taxpayer’s basis in the property.” The letter also includes IRS interpretation of specific and limited scenarios in which those who have received reimbursement from CFSIC could be required to report these funds on their federal tax return:
1. A situation in which a homeowner has previously claimed the federal casualty loss tax deduction, and later receives reimbursement for those previously claimed losses;
2. A situation in which a homeowner “receive[s] reimbursement that exceeds their basis in the property”; in that case, the letter states that homeowners must “include the excess amount in income.”
The delegation will continue to work with IRS officials to secure further clarification on this new information for impacted homeowners.
The delegation added that homeowners with questions about this information and understanding own tax situation should consult with a certified tax preparer.