1099-R and CP 2000 Revisted

[Kram BergGold]

Back in late April my client got a 2010 CP2000 saying client owed taxes on the income reported on two 1099-R Forms that were coded with a G in box 7 that we reproted as rolled over. I figured this was some weird computer glitch and wrote back that the 1099-R clearly indicates that the amounts were not taxable. Then my client got a Notice of Deficiency. Today I called IRS. The Rep said they are no longer necessarily going to believe the code of G and we have to substantiate it. Has anyone else had this issue?

[Gary2]

I've read before that people were seeing CP2000s like this, but not that the IRS wasn't accepting that it was a glitch.

Was there a matching 5498? Perhaps they're trying to match those up, which means there won't be match if the rollover went into a different employer plan instead of an IRA.

[Lion]

I had a client with one. We had to send in the entire paper trail showing the first account closed out, copies of the two checks made out to the second brokerage, receipt at the second brokerage into an IRA account, and on and on. Huge time waster. Agent on the telephone said they had been instructed that G means taxable unless proven otherwise.

[JohnH]

I had a similar experience earlier this year with a client whose 1099R showed a "Code G" when they had done a transfer (not a trustee-to-trustee transaction). We responded to the CP2000 with an explanatory letter - they wrote back that they didn't accept our explanation. So we dug up records of the withdrawal and transfer & sent it all to them. Still waiting to hear back.

[JoshinNC]

And you're all charging $ for this extra work

Right?

[Burke]

Could the problem be that, in these particular cases, there was an entry in Box 2a? Although a direct rollover is required to be reported, the payor is supposed to show "0" in Box 2a. And, in these cases, was Box 2b checked?

[Lion]

2a = 0
2b = blank on one and Total distribution on other
7 = G

[Burke]

Hmmpf. I wonder what their percentage of increased income is from these CP2000's, Like Gary, I wonder if they are matching against the 5498's. Haven't had any yet, but do lots of rollovers coded "G."

[Gary2]

I had a similar experience earlier this year with a client whose 1099R showed a "Code G" when they had done a transfer (not a trustee-to-trustee transaction). We responded to the CP2000 with an explanatory letter - they wrote back that they didn't accept our explanation. So we dug up records of the withdrawal and transfer & sent it all to them. Still waiting to hear back.

Under what circumstances would Code G be the correct code for something that's not a trustee-to-trustee transaction? Perhaps I'm misunderstanding the rules.

[JohnH]

No, you're correct. I should have looked back at the return before posting. It was not a "Code G", nor should it have been.

[taxea]

It is the way they programmed their computer. If something isn't on the line that the computer was told to look at to match the third party item, the computer sends the CP2000. I think we should all call them and tell them to fix their computer because right now it is garbage in, garbage out and it is causing unnecessary work for us, cost for the client and the client gets the impression that we goofed.

[oceanlovin'ea]

happened to me

It happened on our personal return for 2 years in a row. My husband moved our IRA money to a out of state bank which was giving a higher rate of interest. Wachovia Bank (now Wells Fargo) didn't code it as a rollover so we got a letter. We mailed them all the copies of checks, bank statements with account closed,etc. Got letter back stating no change.

Next year he moved the money from the out of state bank to a brokerage firm. Same thing happened again. Sent all the back up and everything was fine.

So just be sure to tell your clients to keep their proof of rollovers just in case they get letters.

Linda, EA

[FEDUKE404]

Was it a DIRECT rollover?

It happened on our personal return for 2 years in a row. My husband moved our IRA money to a out of state bank which was giving a higher rate of interest. Wachovia Bank (now Wells Fargo) didn't code it as a rollover so we got a letter. We mailed them all the copies of checks, bank statements with account closed,etc. Got letter back stating no change.

Next year he moved the money from the out of state bank to a brokerage firm. Same thing happened again. Sent all the back up and everything was fine.

So just be sure to tell your clients to keep their proof of rollovers just in case they get letters.

Linda, EA

Please explain highlighted.

How could WF/Wach *NOT* use the appropriate code on the Form 1099-R if there was, in fact, an institution-to-institution transfer??

OTOH, if you just merely closed out the account and later (appropriately) rolled over the funds yourself, you are at the mercy of entering the distribution information, and separately any rollover information, properly into your tax software and hoping the IRS computers are not having a bad day. If this scenario exists, there is no way WF/Wach could be deemed at fault for any issues on the Form 1099-R ("bless their hearts!"). For them, or you, to enter "Code G" on the actual Form 1099-R would have been inappropriate.

FE

[oceanlovin'ea]

It was going to a credit union in New York state. They made the check out to the credit union, but could not do a wire transfer (if that is the correct term). We had to mail the check to the credit union. But it was not made out to us. Why they couldn't do the transfer without giving us a check was a little confusing to us. It was not a little unknown credit union. He found them on the internet and they were paying a good rate of interest.

Linda, EA

[FEDUKE404]

NOT a direct rollover

It was going to a credit union in New York state. They made the check out to the credit union, but could not do a wire transfer (if that is the correct term). We had to mail the check to the credit union. But it was not made out to us. Why they couldn't do the transfer without giving us a check was a little confusing to us. It was not a little unknown credit union. He found them on the internet and they were paying a good rate of interest.

Linda, EA

My understanding of the rules is that WAS a "payment" to the account owner (not an institution-to-institution transfer) and thus would not qualify for listing on the Form 1099-R using Code G. (The name on the payment check might support the fact that a rollover of the funds had occurred, but never a direct rollover merely via the tax document.) Consider the alternative situation where a similar check could have existed, and the account owner just wanted the (taxable) funds to be deposited into his other bank account. The actual tax document in both cases would have been identical.

With these facts, Wells Fargo would have been prohibited from showing Code G on the Form 1099-R, and therefore it also would not have been appropriate for you to insert a "phantom" Code G when entering the Form 1099-R for efiling.

Your only recourse was to follow the IRS rules for reporting a rollover of this type. Somewhere along the line, your software should have had a Y/N question of the type "were these funds transferred ......" and a yes answer should have handled things. (I think the word "ROLLOVER" gets printed on the appropriate line on the Form 1040?). BTW: What is shown on the hard copy of the relevant Form 1040?

From talking to other preparers, the underlying problem in many cases is the the IRS is somehow "ignoring" a properly submitted return of the "ROLLOVER" listing type, and deficiency notices are being generated. I do not know if the problem is equal or greater with paper-filed vs efiled tax returns.

I hope this helps!

FE