Gross income limits

[JenMO]

When figuring gross income limits, is a 1099 R distribution with a "G" code counted? Other income is well below filing threshold, but if I have to add that, filing will have to done, but no tax. Just wasn't sure.

[dyne]

I once discoverd that the law seems to indicate that only the GAIN on the sale of stock
is considered as GROSS INCOME for purposes of the filing requirements but that makes
NO SENSE as how would IRS know what GAIN was made? I imagine that an IRS letter
would be sent if the gross sales price of stock plus all other taxable income exceeded
the filing requirement amount. So, I file such returns.

[ChEAr$]

When figuring gross income limits, is a 1099 R distribution with a "G" code counted? Other income is well below filing threshold, but if I have to add that, filing will have to done, but no tax. Just wasn't sure.

I think so. These rollovers are usually for large amounts, and to not file a return and thus omitting cognizance of the GROSS amount just invites a CP2000 letter.

To keep client's best interest in mind, recommend he file a return.

[JG EA]

They wouldn't know and that is why in these situations they sometimes send out a notice. But all the TP has to do is explain at that time. If I have someone in that situation I give them a choice and saying I may need to do an amended return later depending on the cirsumstances later. Now or possibly later - they decide.

This is in answer to the capital gain part of the posts. I agree that the top number on the 1099 R is part of the filing requirement.

[Burke]

The IRS should know that if a 1099-R is coded "G" that it is a direct trustee-to-trustee transfer and is not considered part of gross income.

[Rae]

File...

I agree to 'file a return'. It is SO much easier and faster than responding to the letter from the IRS. It's the case quite often with the elderly. The IRS doesn't add all their various 'incomes' together, so when something isn't reported 'dah-dah', the notice. Just plain simpler to file. They don't need the added stress!

[MilTaxEA]

The IRS should know that if a 1099-R is coded "G" that it is a direct trustee-to-trustee transfer and is not considered part of gross income.

That's not my understanding. You would get the same 1099-R if you roll over from a 401k to a Traditional as well as to a Roth. Your reporting on the tax return lets them know what you actually did with the money.

[S T]

When in doubt

I always encourage my Senior's in particular to file - regardless of rollover's or if they received some type of notice from the IRS that stated "they might NOT have to file" due to income level.

Short story from several years ago - Seniors h/w - we filed returns, then they receive the notice from IRS stating they "Might NOT have to file" from IRS. Client calls me the following year and states that they received a notice from IRS "that they NO LONGER have to file - IRS said so!

So we didn't file for 2 years. During those two years - they received distributions from some annuities that were taxable, - but t/p believed based on the previous IRS notice that they "NO LONGER" had to file.

3rd year comes as well as the CP2000 notice - and a hefty penalty for not filing, and late payment of taxes due and interest, cost them several hundreds of dollars.

I have had similar notices on 1099R forms for code G - which we know generall are not taxable, but then have to spend the time to answer the notice and explain to the client.

so my procedure when at all possible, file a return, include the 1099R with code G as a rollover and then I do not have to revisit 2 years down the road, and have an upset client. The client is only mildly irritated that I am asking them the questions and documentation during the current tax year filing.

Sandy

[ChEAr$]

That's not my understanding. You would get the same 1099-R if you roll over from a 401k to a Traditional as well as to a Roth. Your reporting on the tax return lets them know what you actually did with the money.

Correct. All IRS sees and adds to it's taxpayer's account is gross income.

[oceanlovin'ea]

It is just a computer that is comparing what is on the 1099R and what is on the tax return. If it doesn't appear on the tax return or if it appears in a different space, the computer will spit out a letter saying there is a discrepancy and you owe us lots of money.

So better to put it there to begin with than deal with letters later.

On the matter of direct rollovers, I have noticed this year that many institutions are not issuing 1099Rs. One financial institution said it wasn't necessary. I noticed on my mother's paperwork today that she only had 2 1099R's and 3 rollovers. But she got the checks for 2 of them and took them to the credit union. The third one said on her December statement "direct transfer" so no 1099R was issued.

Linda, EA

[ToledoEd]

I usually tell my Senior clients that they should have me look at their information every year, just to make sure that things don't change. Some of them want to file every year even though they don't have to, and I usually will file the returns, but do not charge them full price, Most want the reassurance that they are doing the right thing and don't understand not filing, That $3600 they got isn't much money now, but back when they were earning money that was more than they made some years, and they had to pay tax back then

For the OP I would file to clairify that the Pension Distribution was in fact rolled over. As stated before, it saves the scary letter your client will receive and make them question if you are doing things right.

[taxea]

The IRS should know that if a 1099-R is coded "G" that it is a direct trustee-to-trustee transfer and is not considered part of gross income.

But it depends on how they programed their computer to make the comparisons. If it is programmed to check for a G in box 7 the computer should not generate a CP2000. If not, then it may.

Keeping this in mind I would wait for the CP2000 and have the TP explain to IRS why a return was not filed rather than make the client pay me a fee to file a return that on it's face does not require filing.

[Gary2]

But it depends on how they programed their computer to make the comparisons. If it is programmed to check for a G in box 7 the computer should not generate a CP2000. If not, then it may.

It's not enough to just check for the G since, as MilTaxEA pointed out, it would be code G for a rollover into a Roth IRA.

They should also look at box 2. Here it gets complicated. A conversion from a traditional IRA to a Roth ought to be codes 2 or 7, but if it's from one custodian to another, they may not know and thus mark it code G with taxable amount not determined. So then the IRS would have to match it up with a corresponding 5498, and check whether it's marked Roth. If it is, then the CP2000 is justified.

On the other hand, a rollover from one employer plan to another (e.g. moving a 401(k) when changing jobs) should have 0 in box 2a, with the "taxable amount not determined" box not checked. But I can imagine them getting this wrong.

I think there's enough information for the IRS to get it right, assuming that all of the forms are correct and timely, and that the IRS waits for the 5498s. But I'm not 100% positive, and if any of the forms are wrong, then all bets are off.