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health and safety due to severe cognitive

payments in 2004 under a qualified LTC

Line 26

impairment.

insurance contract or as accelerated

Enter the reimbursements you received or

death benefits with respect to the insured

expect to receive through insurance or

Accelerated Death Benefits

listed on line 16a. See Multiple Payees on

otherwise for qualified LTC services

Generally, amounts paid as accelerated

this page for details.

provided for the insured for LTC periods

death benefits under a life insurance

in 2004. Box 3 of Form 1099-LTC should

contract or under certain viatical

Method 1 —Contract Period

indicate whether the payments were

settlements are fully excludable from your

Under this method your LTC period is the

made on a reimbursement basis.

gross income if the insured is a terminally

same period as that used by the

ill individual (defined next). Accelerated

Generally, do not include on line

insurance company under the contract to

death benefits paid with respect to an

26 any reimbursements for

compute the benefits it pays you. For

insured individual who is chronically ill

qualified LTC services you

CAUTION

example, if the insurance company

generally are excludable from your gross

received under a contract issued before

computes your benefits on a daily basis,

income to the same extent as they would

August 1, 1996. However, you must

your LTC period is 1 day.

be under a qualified LTC insurance

include reimbursements if the contract

contract.

was exchanged or modified after July 31,

If you choose this method for

1996, to increase per diem payments or

defining the LTC period(s) and

Terminally Ill Individual

reimbursements.

different LTC insurance contracts

CAUTION

A terminally ill individual is any individual

for the same insured use different

Multiple Payees

who has been certified by a physician as

contract periods, then all such LTC

having an illness or physical condition

If you checked “Yes” on lines 17 and 18

contracts must be treated as computing

that may reasonably be expected to result

and the only payments you received were

benefits on a daily basis.

in death within 24 months.

accelerated death benefits that were paid

because the insured was terminally ill,

Line 17

Method 2 —Equal Payment Rate

skip lines 19 through 27 and enter -0- on

Special rules apply in determining the

Under this method, your LTC period is the

line 28.

taxable payments if other individuals

period during which the insurance

In all other cases in which you

received per diem payments under a

company uses the same payment rate to

checked “Yes” on line 17, attach a

qualified LTC insurance contract or as

compute your benefits. For example, you

statement duplicating lines 20 through 28

accelerated death benefits with respect to

have two LTC periods if the insurance

of the form. This statement should show

the insured listed on line 16a. See

contract computes payments at a rate of

the aggregate computation for all persons

Multiple Payees on this page for details.

$175 per day from March 1, 2004,

who received per diem payments under a

through May 31, 2004, and then at a rate

Line 20

qualified LTC insurance contract or as

of $195 per day from June 1, 2004,

accelerated death benefits because the

through December 31, 2004. The first

If you have more than one LTC

insured was chronically ill. Each person

LTC period is 92 days (from March 1

period, you must separately

must use the same LTC period. If all the

through May 31) and the second LTC

calculate the taxable amount of

CAUTION

recipients of payments do not agree on

period is 214 days (from June 1 through

the payments received during each LTC

which LTC period to use, the contract

December 31).

period. To do this, complete lines 20

period method must be used.

through 28 on separate Sections C for

You may choose this method even if

After completing the statement,

each LTC period. Enter the total on line

you have more than one qualified LTC

determine your share of the per diem

28 from each separate Section C on the

insurance contract covering the same

limitation and any taxable payments. The

Form 8853 that you attach to your tax

period. For example, you have one

per diem limitation is allocated first to the

return. See the instructions for line 23 on

insurance contract that pays $100 per day

insured to the extent of the total payments

this page for the LTC period.

from March 1, 2004, through December

the insured received. If the insured files a

31, 2004, and you have a second

Line 21

joint return and the insured’s spouse is

insurance contract that pays $1,500 per

one of the policyholders, the per diem

Enter the total accelerated death benefits

month from March 1, 2004, through

limitation is allocated first to them to the

you received with respect to the insured

December 31, 2004. You have one LTC

extent of the payments they both

listed on line 16a. These amounts

period because each payment rate does

received. Any remaining limitation is

generally are shown in box 2 of Form

not vary during the LTC period of March 1

allocated among the other policyholders

1099-LTC. Include only amounts you

through December 31. However, you

pro rata based on the payments they

received while the insured was a

have two LTC periods if the facts are the

received in 2004. The statement showing

chronically ill individual. Do not include

same except that the second insurance

the aggregate computation must be

amounts you received while the insured

contract did not begin making payments

attached to the Form 8853 for each

was a terminally ill individual. If the

until May 1, 2004. The first LTC period is

person who received a payment.

insured was redesignated from

61 days (from March 1 through April 30)

chronically ill to terminally ill in 2004, only

Enter your share of the per diem

and the second LTC period is 245 days

include on line 21 payments received

limitation and the taxable payments on

(from May 1 through December 31).

lines 27 and 28 of your individual Form

before the insured was certified as

8853. Leave lines 23 through 26 blank.

terminally ill.

Line 24

Line 23

Example 1

Qualified LTC services are necessary

diagnostic, preventive, therapeutic,

The number of days in your LTC period

Mrs. Smith was chronically ill throughout

curing, treating, mitigating, and

depends on which method you choose to

2004 and received 12 monthly payments

define the LTC period. Generally, you

rehabilitative services, and maintenance

on a per diem basis from a qualified LTC

or personal care services required to treat

may choose either the Contract Period

insurance contract. She was paid $2,000

a chronically ill individual under a plan of

method or the Equal Payment Rate

per month ($24,000 total). Mrs. Smith

care prescribed by a licensed health care

method. However, special rules apply if

incurred expenses for qualified LTC

other persons also received per diem

practitioner.

services of $100 per day ($36,600) and

-7-

Instructions For Form 8853 - Archer Msas And Long-Term Care Insurance Contracts - 2004 Page 7

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