When a Traditional IRA Annuity is (simply) converted to a Roth IRA (and the Annuity retains its Contract Number and Terms), is the conversion considered a surrender? and/or does the (positive) Market Value Adjustment get factored into the Taxable Amount that then appears on Form 1099-R? And, if the MVA does get factored in, does the (6%) Surrender Charge also get factored in?

My Financial Consultant, my Accountant, and I all say “No, if an Annuity retains its Contract Number and Terms, converting the Annuity to a Roth does not mean that it has been surrendered – so the Taxable Amount that appears on Form 1099-R will simply be the Account Value / Accumulated Value / Conversion Amount – and there will be no involvement of an MVA because there was no surrender.” (The Contract has never been annuitized.) And the Insurance Company itself (at first – and IN WRITING) had agreed.

But eight months later, the Insurance Company (now) is saying “Yes, the conversion is considered a surrender and so the MVA – although not the Surrender Charge – is activated” and “we apologize for any inconvenience” caused by the “misinformation” we had earlier provided you. The Taxable Amount that the Insurance Company is reporting on Form 1099-R is therefore $185,000 MORE than they had originally “confirmed” (again, in writing) last April 2010 at the time of the (simple) conversion. Please help!!! Any suggestions/advice would be deeply, deeply appreciated.