Nominee 1099r

[GTS1101]

Client received a check from his mother's trust after she passed away for 28,000 from an IRA account. The 1099-R came in my client's name only. This amount was for him and his three brothers. He distributed 21,000 to his three brothers as they each got 7,000. I could not find anything in the IRS instructions for Form 1099-R that we could do a nominee 1099-R so the brothers can pay tax on their portion. I know this can be done with 1099-INT and 1099-DIV. Anybody out there ever done this with a 1099-R or know if this can be done? My client is getting stuck with a 7,000 tax bill if he has to pay on the full amount and he is going to have a hard time collecting the tax from his brothers.

GTS1101

[FEDUKE404]

Question

(Brother may have a problem.)

Why was this not handled by executor, with 1/4 going to each brother, instead of a Form 1099-R to the (one) brother?

Did the trust issue a Form 1099-R ? ? ? ?

Also.....I think I would ask to see how the original IRA beneficiary statement was actually worded...........

FE

[GTS1101]

The 1099-R shows my client's name as beneficiary of his mom but the trust's name is not on the 1099-R. I don't know why it was not split correctly. They issued the check in my client's name only so maybe that is why he got the 1099-R for the full amount.

GTS1101

[FEDUKE404]

On further review

The 1099-R shows my client's name as beneficiary of his mom but the trust's name is not on the 1099-R. I don't know why it was not split correctly. They issued the check in my client's name only so maybe that is why he got the 1099-R for the full amount.

GTS1101

If that is the case (and the IRA beneficiary selection truly had four people instead of one!) I would request a corrected Form 1099-R as well as copies for the other three brothers.

BTW: Are you certain that the brother is not, perhaps, doing this distribution "on his own" as opposed to the decedent's will and/or verbiage with the original IRA?

As for the brothers "paying the tax" - if I were one of the brothers I might balk at paying also - at least under these circumstances. Right now it almost sounds as if the brother with the Form 1099-R might have even made a gift to the other three.

FE

[Burke]

They issued the check in my client's name only so maybe that is why he got the 1099-R for the full amount.GTS1101

Who is "they?" And whose name is on the 1099-R as payor? If it was the insurance company or bank or custodian that handled the IRA, and the TP was the only named beneficiary, then it was handled correctly. If it was the trust who was the beneficiary, and the trust got the proceeds, the trust who issued the check, then it was not handled correctly. The trustee (who is it?) should have paid out the proceeds depending on the wording in the trust. And the proceeds would have been reported on the K-1 under "Other Income." (Your TP got the proceeds, ergo, he got the 1099-R.) He could have (and should have) withheld enough from the proceeds to the other brothers to pay the tax. Or given it back and had the trust do it correctly.

[bgiez]

I have a similar situation - my client is the beneficiary of her mother's state pension (which continues until my client dies - no wonder our state is broke). She knows her mother really wanted the split the pension among the 3 children, but was only allowed one beneficiary on the pension, so she picked the one she could count on to give her siblings their share. So this is what I do:

I prepare her return entering everything as it should be, except using only one third of the pension. I tell her what her total tax liability would be after credits if she only received her share of the pension. Then I correct the pension amount to match the 1099R and tell her the new and correct tax liability. The difference between the two liabilities is what she subtracts from the remaining 2/3 of the pension, then divides by 2 and gifts to her siblings.

For instance, using 30K as the pension amount, I enter it the first time as 10K and see what the liability is after credits. Then enter it correctly as 30K which may exclude her from some credits plus possibly push her to the next tax bracket. Say the liability increases by $7000. 20K less 7K = 13K. 13K / 2 = 6.5K to each of the two siblings. A very little extra work for me, my client doesn't feel she's getting the short end, and her siblings still get a share, tax free as far as their tax returns go.

[Burke]

And that's fair. I used to have a similar one, sort of. "Mom's" money was put in one son's name to protect from second husband's clutches. (Forgetting the gift tax consequences), every year the income on this money which was in mutual funds & CD's was taxed to son, of course, and reported on his tax return. Every year I had to complete the return, take this off and figure the difference in tax, then that portion was subtracted out of "Mom's" bank account to reimburse them. When she died, it was divvied up 3 ways to the siblings. Thank the lord we have computers nowadays who can do this instantaneously, recomputing all the other things that the income affected.

[iratax]

A named beneficiary of an IRA takes president over a will or Trust. A client of mine just fought a long court battle over this and lost. Even though the will specifically excluded an individual the court gave her the money because she was the named beneficiary of the IRA. The 1099R is correct and you client gave a gift to the other beneficiaries.

[GTS1101]

Thank You for all your responses. The IRA was from a bank and it was issued in my client's name only which was correct. My client emailed me this morning and told me his is not paying tax on the portion that went to his brothers. He told me that he only wants to report his 1/4 of the amount and that he and his lawyer would hash it out with the IRS. I believe the IRS will tell him he has to report it all and collect the tax from his brothers as I suggested because he already gave them the gross amount and pay the tax on his return. He refuses to do it that way and thinks his lawyer will help him with this. Maybe he will but I don't think the IRS is going to allow it.

GTS1101

[Larmil]

Thank You for all your responses. The IRA was from a bank and it was issued in my client's name only which was correct. My client emailed me this morning and told me his is not paying tax on the portion that went to his brothers. He told me that he only wants to report his 1/4 of the amount and that he and his lawyer would hash it out with the IRS. I believe the IRS will tell him he has to report it all and collect the tax from his brothers as I suggested because he already gave them the gross amount and pay the tax on his return. He refuses to do it that way and thinks his lawyer will help him with this. Maybe he will but I don't think the IRS is going to allow it.

GTS1101

I hope you meant "ex-client".

[luke]

GTS1101 - YOU should NOT prepare this return INCORRECTLY (no matter what his "lawyer" says - YOU will be the one IRS FINES!

[Burke]

Absolutely agree. It's your way or the highway. He will NOT win this one, (and his lawyer will probably tell him so.)