1099-R question

[JCH]

My client distributed more than he wanted from his IRA, 100K, so decided to pay back 20K to his IRA. This was all done within 60 days of the distribution. Distributions and repayment all happened during 2010.

His 2010 1099-R for reflects all 100K distributilons in box 1 and 2a. Taxable amount not determined box is checked.

The IRA broker won't reissue a corrected 1099-R, but I'm concerned about a matching problem if I don't enter the entire 1099-R taxable amount on the return.

Anyone else run into this before? Broker says his repayment is actually a rollover, reflected on Form5498.

[BP.]

I get some of these from time to time- usually do an electronic explanation and then hang on to copies of the relevant transaction details to send in when the CP notice appears. I wouldn't think the 1099-R would or should be changed. The rollover (repayment) is a separate transaction from the distribution.

[JCH]

I'm trying to avoid a notice, but maybe that's the only route to take at this point. Thanks for the response.

[dtlee]

If you indicate that these are "Rollover" transactions properly on the tax return, you might have less follow-up issues from the IRS. However, you need to have the client retain all of the records needed to support that the rollover is timely.

[AJsTax]

That amount going back in is an

indirect rollover. Most software will give you a line to make that notation either on the 1099 screen or the form.
The 1099-R is correct. The form 5498 will be needed to show the rollover and will be removed from taxable income.

[ChEAr$]

In short, you don't have to explain nuttin'. (anything)

Just enter gross amount and taxable amount. Don't cloud the issue by explaining.

[JohnH]

I agree with Harlan. Can't remember where I first read or heard this, but someone many years ago said to resist the urge to explain things on tax returns. Just submit accurate info in the space provided and let IRS ask questions if they have any. No sense waving the red flag in front of the bull.

Since then, I can't tell you how many times I've prepared returns that I just KNEW would draw an inquiry of some sort. Yet, most of the CP2000's and/or inquiries have come from things I never dreamed would raise questions whereas those I was certain would cause problems just sailed right on through. I've found that initial advice to be extremely valuable.

[ChEAr$]

The way I heard it many years ago was while on active duty with army, "Never complain; never explain."

[joanmcq]

The 100K, taxable amount not determined is correct. For an IRA, the broker has no idea what the basis, if any, is. Or if they have basis in any other IRAs at other institutions.

Indicate 20K was rolled over. On 1040 Line 15a, 100K. Line 15b 80K. Your software should print 'ROLLOVER' next to the line.

[oceanlovin'ea]

May still get letter

In 2008 we moved IRA money from credit union to Wachovia bank. They handed us checks to take to the bank made out to the bank. They did not code them as rollovers. Then we added another check for 2008 contribution. Reported amount from credit union as rollover.
Last year got CP2000 letter for something like $25,000 of tax due on distributions. After I got up off the floor, we got out all our paperwork showing amount of check from credit union and another from bank showing amount of deposit exactly the same. I sent in all the proof.

Wait for acknowledgement and reversal of amount due. Get another letter with a little different amount by still $25,000 due. So I called number on letter. Talked to a nice gentlemen from IRS. He looked over all the information they had. Then he said well, everything was in order. He would just correct it while I was on the phone and he did.

I thanked him...told him I was up for EA renewal this year and couldn't renew with this letter open.
So you can do it all right and still get letters. Hope you don't get any but don't be surprised. Warn client he just MIGHT get a letter and to bring it to you when he does. Also tell him to keep all his documentation as he will need it then.

Linda, EA

[JCH]

The 100K, taxable amount not determined is correct. For an IRA, the broker has no idea what the basis, if any, is. Or if they have basis in any other IRAs at other institutions.

Indicate 20K was rolled over. On 1040 Line 15a, 100K. Line 15b 80K. Your software should print 'ROLLOVER' next to the line.

You are correct. Learn something new everyday. Thanks to everyone for your responses and feedback.