How do I report $69k taken as caregiving services for 13 years after mom was placed in a care facility?

MRIEHM - I think you really should talk to a qualified accountant. This is too complicated and there's too much money involved to get your advice from fellow caregivers who are not tax experts and don't know the details of your mother's situation.

No contract, no 1099 or W2. 

I agree with Carla; that was also my thought as I first read your posts some several hours ago. There are a lot of issues that need further elaboration.

E.g., is the Trust a Living Trust? Are you and your sister co-Trustees with equal authority to act now? Who created the Trust? Are you asking about issuing a 1099-G for all the years in which caregiving activities were involved, or just the last year?

Who prepared tax returns during this time? This would normally be a trustee's responsibility. Did your sister report the income?

Were there early withdrawal penalties for the annuity?

You wrote "The funds were withdrawn without paying taxes (now Mom will be responsible for those taxes as Income)" Did the company that issued the annuity also issue a 1099? It might have been that the withdrawal occurred during a period which didn't penalize for an early withdrawal.

Even if you did issue a 1099-G to offset taxes on an annuity withdrawal, it would only be for that year, and whoever is responsible for issuing the 1099-G might be in trouble for not having done so. But it depends on whether in fact the distribution was taxable.

But then there's no caregiving contract, so there's no apparent documentation of the caregiving arrangements.

....at least I think this is what the situation is. No criticism, but it's somewhat difficult to follow.

But... if there's no contract, no agreement as to what/why the money was paid to sis, then the whole thing falls apart as "income from caregiving." Caregiving agreements are so important for this and other reasons. Could the $69k be framed as reimbursement money for any reason?

If the "trust" is in fact an IRA, then daughters are co-trustees of an IRA, not a Living Trust as I assumed. From this IRS Pub 590:

"Nonbank trustees or nonbank custodians (NBT) are described under Treasury Regulations Section 1.408-2(e). An entity that is not a bank (or an insurance company ... can request to be a nonbank trustee/custodian by applying in writing and demonstrating that certain requirements will be met in order to handle any of the following fiduciary accounts: ... [list of accounts] •Individual Retirement Arrangement (IRA)".

So it is possible that either or both qualified to be Trustee or Co-Trustees of an IRA.

However, rereading the OP's second post (and quoting b/c I don't want to misinterpret):

"Sadly my sister was placed on my mothers Trust Bank account incorrectly has POA (Just had huge issue with Bank when I need to be placed on the account as Co-Trustee) Prior to this my sister acted on POA to an Annuity account and withdrew the money without my knowledge. The funds were withdrawn without paying taxes ..."

OP, placed by whom on the account??

So sister withdrew funds from an annuity, which isn't to my knowledge equivalent to an IRA. OP, is this correct? We're talking about an annuity distribution, right?

So, to clarify, of what are these two sisters Co-Trustees? IRA? Annuity? Living or Irrevocable, or other kind of Trust?

If an IRA was involved, I can't conceive how this passed the IRS, which would have received a 1099-R (I believe that's the correct reference) for the year(s) of withdrawal from the entity that held the IRA. So should have the Trustee(s), although I don't which Co-Trustee would have been the designated recipient.

I can't conceive of the IRS not having contacted someone if taxes weren't paid, but were required.

There's another possibility and that is that there really is a Trust, such as a Living Trust, and the IRA, or annuity had been funded (and retitled in the name of the Trust).

My understanding of assets titled in a Trust are that they're taxed at the individual rate while the mother is living, but taxed at the accelerated rate after death. If that's still the case, the back taxes should be at the mother's individual rate.

So, we don't know whether there's a separate Trust; we don't know for sure if the withdrawal was from an annuity, or from an IRA.

And in any of those situations, this problem can't be solved here.

OP MRIEHM, you need to see a tax attorney who's an "enrolled agent". An ER is qualified to represent clients with the IRS, and I think at this point it's the only way you're going to be able to address the tax issue first and foremost and learn what penalties might be assessed.

If you can find an attorney in a firm which also has an elder law practice, you can address the issue of caregiving funds. But first you have to address the issue of potential back taxes.

And if the two of you are Co-Trustees of either an annuity or IRA, I think you can expect the IRA to take a dim view of the failure to address taxes until now. That's not a criticism, just a "be prepared" caution.

And I do hope the OP returns to clarify these issues.

What I gather from the information provided is that this is a tax-exempt trust such as an IRA. So amounts were not taxable (or were deducted from income) when they went into the trust and are subject to income tax when they are withdrawn. (That's the first fact that needs to be established - if the trust money was saved on an after-tax basis, then there's no tax issue at all.)

It sounds like the OP is looking for way to shift that income tax liability from her mother to her sister, who withdrew the money. One way would be for the mother to deduct this as a medical expense and the sister to include it in income as earnings from employment or self-employment. (I'm leaving aside the issue of a penalty because the mother appears to be elderly, and in any event is disabled, which provides exemption from the penalty).

That idea is complicated by the fact that the caregiving occurred over a period of years and the withdrawal took place at once, when the mother went into a facility. (Is that right, MRIEHM?) And by the fact that there was no caregiving agreement.

Treating it as a reimbursement wouldn't work because the money would still be taxable to the mother and there's no deduction for reimbursements.

I'm not sure how important the absence of a caregiving agreement is. It would be critical if the parent were on Medicaid, but clearly she's not. It will become an issue if the parent needs Medicaid within 5 years, but then that ship has already sailed given that the money has been taken. For tax purposes, I'm not sure how closely the IRS would look at a big deduction for caregiving services in one year for an individual who is already in a care facility. That's what you need the accountant for.

And also that you cross every "t" and dot every "i", and also that you do this in the most tax-effective way possible for your mother. For example, don't issue a W-2. If sister is treated as an employee, Mom is required to withhold income tax and FICA taxes, and transmit them to the IRS. That clearly was not done. A 1099-Misc (non-employee compensation) is the better route, which would make sister liable to pay all those taxes out of her own pocket. Again, I'm not saying go ahead and do this. I'm saying, talk to an accountant about the possibility of doing this and the likely issues with it.

You are correct. If sister declares that money on her taxes....then the IRS will likely audit.

The IRS rules are very clear...All In-home Domestic Service are employees. The penality is totally on your Mom....all taxes and penalities are on your mom, not her caregiver.

The only path I can imagine for her now is to all APS and report sister for financial abuse. Medicaid is going to see that as a gift ... no contract.

I would go talk to a lawyer specializing in elder care issues.

I don't know it's as clearcut as you (Katiekate) say. For one thing, companionship services seem to be exempted. But there's a limit on how much time can be considered companionship services, and that's complicated by having all the money paid out in one year. 69K sounds like a full-time job, not a few hours a week. That's why I think some sort of specialist is needed here.

Carla, thanks for the explanation. I'm afraid that my brain is too fogged right now to follow your logic, so I'll mull it over and respond later.

The trusts with which I'm experienced were initially funded by transfer of title, then periodically continued to be funded with dividends and cap gains. Had there been an IRA, those distributions would have funded the trust as well, but would have been subject to tax in the year of distribution.

I need to think about the issue of taxability when funded, rather than after funding. This just isn't clear to me right now. The OP's mother would be in an age bracket that mandatory distributions from an IRA would be required, and that would mean annually. Or maybe the sister withdrew from the IRA in addition to the mandatory distributions?

I think you raise another issue, and that's payout to the beneficiaries. My understanding is that that payout wouldn't occur until after death, when the Trust became irrevocable. But there could also be a provision allowing periodic payouts.

Too little information, really. And I have a feeling that the OP won't be returning.

This is an interesting situation, but it would be helpful if we had more information.

so I guess what your saying is Mom is screwed on taxes ? It's sad when family takes without thinking of the consequences.