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1099-R coding question

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    1099-R coding question

    Payer coded box 7 exception 1 even though the terminated employee was over 55 when the distribution from the company profit-sharing plan was made. They had to know that the 10% penalty did not apply. Is the company taking the easy way out and just coding anyone under 59 1/2 with exception 1 or an I missing something here? Do we have a potential issue with the IRS down the road if we file the return with code 2?

    Art

    #2
    Originally posted by Art View Post
    Payer coded box 7 exception 1 even though the terminated employee was over 55 when the distribution from the company profit-sharing plan was made. They had to know that the 10% penalty did not apply. Is the company taking the easy way out and just coding anyone under 59 1/2 with exception 1 or an I missing something here? Do we have a potential issue with the IRS down the road if we file the return with code 2?

    Art
    You can't change the Box 7 to 2. It must be corrected by the payer if it indeed is incorrect.

    1 – Early distribution no known exception
    2 – Early distribution exception applies

    If you change it and e-file just be prepared for a CP2000 and taxpayer will have to deal with this issue later. I would rather wait to file and get it corrected if possible.
    Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

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      #3
      Originally posted by Art View Post
      Do we have a potential issue with the IRS down the road if we file the return with code 2?
      Yes. The correct way to handle it is with a 5329 form using exception code 01.

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        #4
        Perhaps the documents issued to the TP from the issuer may have a clue.
        Believe nothing you have not personally researched and verified.

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          #5
          You did not indicate the age at which this individual separated from service. The age 55 exception must be met by both the separation from service and the distribution.
          Doug

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            #6
            My bad. Taxpayer was over 55 at the time of separation from service and the time of request for distribution. Code 1 on the 1099-R is correct. Need to use code 1 on the 5329 to remove the distribution from 10% penalty.

            Art

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              #7
              If I remember correctly without looking it up, the TP must also have been a plan participant for at least 5 years in order to qualify for this? Be sure to check.

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