1099-r

Collapse
X
 
  • Time
  • Show
Clear All
new posts
  • cathe
    Member
    • Jan 2007
    • 71

    #1

    1099-r

    Client had a 1099-R in 2009. code in box 7 was LI. My software did not calculate a 10% penalty. Now the IRS wants that penalty. Called the software co. they couldn't get the program to do anything but exempt the penalty. In the 2011 software only an L is allowed in box 7 and it also does not generate the 10% penalty.
    So now I am trying to find out if the IRS is entitled to the penalty. The 1099-R instructions state that a deemed loan MAY be subject to the penalty. Can anyone give me any more info on where specifically to get guidance on determining this? I am not great at research. Most of my returns are vanilla and this is definitly pistachio!
    This was a 401K distribution in a divorce with a loan on the 401K involved. Taxpayer does not qualify for age exemption to the penalty.

    Thanks

    Cathe
  • RitaB
    Senior Member
    • Jul 2008
    • 1382

    #2
    Same as distribution

    A defaulted 401(k) loan is a distribution. Sounds like your genius client is going to be coughing up some dough. The piper is calling his name. And, if I had a nickel for everytime I had to override my software, I would have several dollars by now.

    If you loan someone $20 and never see them again, it was probably worth it.

    Comment

    • taxea
      Senior Member
      • Nov 2005
      • 4292

      #3
      Most divorce settlements of this type indicate in the court agreement that the funds are paid at the time that the TP/payer retires. You might want to see the document. This TP may have decided on his own to payoff the funds immediately and didn't do it properly.
      Believe nothing you have not personally researched and verified.

      Comment

      • Burke
        Senior Member
        • Jan 2008
        • 7068

        #4
        Sounds like a QDRO to me. Normally, not taxable. But I cannot find any source that will exclude this due to the outstanding loan being deemed a distribution. Whether you can get the 10% penalty waived is another matter. Try using Code 06 and grovel to the IRS.

        Comment

        • veritas
          Senior Member
          • Dec 2005
          • 3290

          #5
          Box 7

          Originally posted by cathe
          Client had a 1099-R in 2009. code in box 7 was LI. My software did not calculate a 10% penalty. Now the IRS wants that penalty. Called the software co. they couldn't get the program to do anything but exempt the penalty. In the 2011 software only an L is allowed in box 7 and it also does not generate the 10% penalty.
          So now I am trying to find out if the IRS is entitled to the penalty. The 1099-R instructions state that a deemed loan MAY be subject to the penalty. Can anyone give me any more info on where specifically to get guidance on determining this? I am not great at research. Most of my returns are vanilla and this is definitly pistachio!
          This was a 401K distribution in a divorce with a loan on the 401K involved. Taxpayer does not qualify for age exemption to the penalty.

          Thanks

          Cathe
          Code L and Code 1 are two seperate codes. Your software should have had the capability to enter both codes.

          Comment

          • RitaB
            Senior Member
            • Jul 2008
            • 1382

            #6
            Oops

            Originally posted by RitaB
            your genius client
            Should have read the whole thing. The genius is the ex-spouse. Maybe your client can get some help on the penalty, after all.
            If you loan someone $20 and never see them again, it was probably worth it.

            Comment

            Working...