If my mom purchased an annuity in 1993 for $12K and cashed it out in 2009 (lump sum) for #11,580 how much tax is owed on the lump sum. Received a 1099-R form and it says the full amount is taxable?

What funds did she use to purchase the annuity? If she purchased it by rolling another tax-deferred account into it (such as freom an IRA or 401k) then yes, the full amount is taxable. But if she contributed any after-tax money to the annuity then that portion of the payout is tax free. It's possible that the bank didn't know how much of her initial purchase was with after-tax money. Tell us- is box 2checked (" Taxable amount not determined")? If not, and if you believe that some of the distribution should be exempt from tax, she may have to call the institution to have them issue a correetd 1099-R.