IRS Ruling Has Taxing Consequences on Expenses

Question: In 1986, my husband and I paid $3,919.93 for prepaid funeral expenses. Since then the money has earned $563.24 in interest and, if we live another 10 years, the mortuary will collect another $2,515 plus compound interest. Presumably this money will pay whatever the funeral expenses are at the time. However, I’m sure the survivor will never get the difference. In the meantime, we are paying taxes on the interest. It seems to me that the mortuary should pay the tax because they have the use of the money. This year it cost us $30 extra in taxes. Is there any law regarding this matter?--E.K.

Answer: There is indeed, but you won’t like it. It isn’t really a “law,” according to Jim Allen, executive officer in Sacramento for the California Board of Funeral Directors and Embalmers, but an Internal Revenue Service ruling.

“The IRS takes the position,” Allen says, “that even though the individual never intends to receive the income, partially or in full, the increase in valuation is to his benefit and, therefore, taxable to him.” “Consumers,” Allen adds in masterful understatement, “don’t tend to look at it that way.”

Q: I have been trying by phone to find a Better Business Bureau in Los Angeles and was told by the operator that it was closed a year ago. I wonder if you could print the address of one.--J.V.

A: The operator was right: The Better Business Bureau of Los Angeles and Orange counties was closed in November, 1987. It went out of business when its membership plummeted from about 6,800 to about 3,000 and it ran out of money. Thus, L. A. became the largest city in the country without a BBB.

Six months later, however, a successor BBB was formed in Cypress to serve both Los Angeles and Orange counties. All I can do is pass along their two telephone numbers, both of which yielded nothing but busy signals for three days. The general number is (714) 527-0680; the number “for complaints” is (714) 527-0783.

If you succeed in getting through on the “complaint” line, you’ll get a taped message about how to file. (You have to send a stamped, self-addressed, long envelope to P.O. Box 669, Cypress, Calif. 90630, for a form. Letters describing a complaint are not acceptable.)