1099-r

[peggysioux]

Taxpayer received a 1099-R with a distribution code of 7 and box 1 and box 2 showing the same amount at approx. $280,000. However, taxpayer states that he rolled over $200,000 to another retirement account and only received $80,000. I advised him that I needed a corrected 1099-R. He called Charles Schwab and was advised that all that needed to be done was send to the IRS a letter that was provided by Charles Schwab showing that a wire transfer was done from Charles Schwab to Pershing for the $200,000. However, the letter does not state that the new account was a retirement account. Charles Schwab does not seem to want to issue a corrected 1099-R. What would you recommend?? If I could get a statement from taxpayer showing that the account that the funds were transferred into was a retirement account to send along with the other letter, would that suffice?

[Barb132130]

You don't need a corrected 1099R

The software you use should be able to handle a rollover. Isn't there an option in your 1099R input screen to designate this as a partial rollover? It should only list the taxable portion on line 16b, with the marginal entry of "rollover" next to the line. No letter needs to be attached. The IRS verifies the rollover when they get the 5498 from the trustee.

[peggysioux]

1099-r

I would not be entering 1099-R as shown if I change to partial roll-over. If I make a change wouldn't I need to show substantiation regarding change? And, is it correct to make changes to 1099-R?

[rjholmes]

My software (ATX) allows me to input exactly as the 1099-R shows, but with a 3rd field to show any rollover amount. Then we have a rollover explanation to explain the transaction.

[Barb132130]

1099r

You would not be changing the 1099R. You would input it as shown. However, as rjholmes pointed out, your software should have the option of indicating the rollover. It is not up to the trustee to issue a corrected 1099R if a full distribution is made to an account holder, then that person takes part of the money and does a rollover. That is indicated on the tax return.

[peggysioux]

1099-r

Taxpayer did not receive the $250,000 and then set up a new retirement fund. Charles Schwab wired the funds to new investment company; taxpayer did not handle the $250,000 funds.

[Barb132130]

1099r

Doesn't matter. Handled same way on tax return.

[peggysioux]

1099-r

Being Charles Schwab wired the funds to the new investment company, shouldn't there be one 1099-R distribution for the roll-over portion and a second 1099-R for the funds that were distributed to taxpayer?

[FEDUKE404]

Figuring out the facts

Being Charles Schwab wired the funds to the new investment company, shouldn't there be one 1099-R distribution for the roll-over portion and a second 1099-R for the funds that were distributed to taxpayer?

I tend to agree with this statement.

*IF* Schwab indeed directly rolled over some/all of the funds into an eligible retirement account, including at another institution, it seems they dropped the ball (if that is what really occurred) by coding the entire transfer as a "Code 7" distribution. One would expect the bulk of the funds to be on a Form 1099R with a proper rollover code and the remainder of the funds on a separate Form 1099R with a regular distribution code.

Such a scenario might beg for a "corrected" Form 1099R, regardless of what Schwab says.

OTOH, you still can make the tax return fit the facts by entering exactly whatever is on the Form 1099R, and then using your software to fill-in an amount that WAS properly rolled over by the client. I might first ask the client some rather pointed questions, however.

And seeing a Form 5498 might clarify a LOT of things here!

BTW: Was there any federal/state tax withholding? That might be indicative of some further "confusion" at play here. . .

FE

[Burke]

Being Charles Schwab wired the funds to the new investment company, shouldn't there be one 1099-R distribution for the roll-over portion and a second 1099-R for the funds that were distributed to taxpayer?

Perhaps, but good luck getting one. It is easy enough to handle on the tax return as stated in the posts above. Just require some documentation from the TP as to where and what type of account the funds were rolled into. He should have a confirmation. I have had several this year with the same scenario. I make them bring me the data from the new custodian so I have it in my files. A statement from the TP is not sufficient. They really don't have a clue most of the time whether it was handled correctly. It may have gone into a ROTH.

[Bees Knees]

The Instructions for Form 1099-R say:

If part of the distribution is a direct rollover and part is distributed to the recipient, prepare two Forms 1099-R.

The one that is a direct rollover would then be code G, and the one that is a distribution would be code 7. So in this case, the issuer of the 1099-R did it wrong.

Having said that, preparing the tax return to reflect the actual tax liability will not incur any taxpayer or preparer penalties. The tax return transmitted to the IRS will show that there was a partial rollover. Form 1040 does not distinguish between a rollover that is a direct rollover (code G), or a rollover where the taxpayer received the funds and within 60 days, deposits the funds in a new account.

Thus, even though the 1099-R shows the entire amount as code 7, there is no reason to question the return showing a partial rollover because it is possible the taxpayer received all of the funds, and then made a partial rollover within 60 days. The ONLY way IRS will know the truth is if the return is audited. At that point, all you need to do is prove the partial rollover did in fact qualify as a partial direct rollover, and the IRS auditor will move on, since the return reflects the correct tax liability.

IRS auditors do not care about technicalities when they do not change the tax liability.

[FEDUKE404]

Something is missing here

While I agree that any competent tax preparer should be able to handle the rollover issue, there are two items here that catch my attention.

1 - I think it is highly unlikely that Schwab would not "know the rules" for the preparation of a correct Form 1099-R. The fact that all is coded "7" and none is coded "G" could be a strong indication there was perhaps no direct rollover into a qualified retirement account.

2 - Putting your complete faith in "However, taxpayer states that he rolled over $200,000 to another retirement account and only received $80,000" could be a slippery slope, absent more tangible facts and/or documentation.

IF it was a direct rollover, then the Form 1099R is incorrect.

IF the client had all of the funds moved "somewhere" and then later moved some of those funds into an appropriate account and within the appropriate time frame, then go with what is on the Form 1099R and separately enter the correct additional information to determine the taxable amounts shown on Form 1040.

FE

[Burke]

2 - Putting your complete faith in "However, taxpayer states that he rolled over $200,000 to another retirement account and only received $80,000" could be a slippery slope, absent more tangible facts and/or documentation.
FE

That's why I make them bring me the forms, either 5498, or confirmation showing the type of account & when the monies were received.
They should have both, and if they don't, they can get them.

[ddoshan]

Just a thought. Schwab may have made a direct wire transfer of money to another financial account of some kind but would that necessarily mean they knew it was for a direct rollover to another qualified retirement account. The client, I would assume, could direct Schwab to transfer X amount of money out his retirement account to X company. As far as Schwab is concerned they might not even know this was intended to be a direct rollover and therefore treat it as a normal distribution of the funds.