In 2011, 50 year old client moved $60k in traditional IRA account to a Roth IRA account. In 2012, the client received a distribution from the Roth IRA account of the full amount. In 2011, the client did not receive a 2011-R showing the transfer of the funds from the traditional IRA to the Roth IRA. In fact, a request of an account transcript from IRS shows that the 1099-R was not issued to the client or reported to IRS. In 2011, the client prepared own tax return and did not include the transaction of moving the funds from the traditional IRA to the Roth IRA. Now for the tax year 2012, the client wants me to prepare the 2012 tax return including the 1099-R with the distribution from the Roth IRA. My question is: Should the 2011 tax return be amended to report as income the $60k in funds being transferred from traditional to Roth even though the 1099-R was never issued for this transaction? If the answer is 'yes', I will amend the 2011 tax return and show the income in 2011. Then I will prepare the 2012 and report the early distribution (with penalty) of the $60k from the Roth. If the answer is no, then I will be open to suggestions. Thanks!
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The fact that a 1099R was neither issued, nor sent to IRS, gives us pause to ask was it really an IRA account? Have you seen documents from the payer proclaiming it such?
There are of course clients who don't know the difference between a retirement account and an IRA. A client may have money saved up for his retirement that is not a tax deferred account.
Just like clients who know the difference between an accountant, a cpa, or an EA. much less what that new fangled term was, RTRP. LOLChEAr$,
Harlan Lunsford, EA n LA -
Was it a retirement account?
I have never heard of any "retirement account" (Roth IRA or Traditional IRA or 401(k) ) which does not automatically issue a Form 1099-R upon distributions (to include direct rollovers).
The first thing I would do is procure an account statement showing the alleged distribution. Is it even a "retirement" account??
Second thing I would do is start looking for/asking about the lack of issuance of any Forms 1099-R and/or Forms 5498.
Until we hear more from you, my money is on basic "client confusion" about the original distribution.
As for the original question, OF COURSE **IF** there was a transfer of funds from a Traditional IRA to a Roth IRA, the client must report this taxable transaction as a 2011 event. Then you can deal with the 2012 tax events.
FEComment
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I agree. A few pages of account statements will clear up hours of discussion with a confused client. Tell them to obtain the statements for the period in question."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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More info...
Thanks to those of you who have replied. I should have mentioned in my original post that I do indeed have copies of statements of the accounts. I have also spoken with the investment guy (who has a solid reputation here in my area) and he confirms that a 1099-R should have been issued but was not. For now, can we approach this situation as if the accounts are valid and that the 2011 1099-R was not issued but should have been? If so, it sounds as if (based on one of the replies) that the 2011 tax return should be amended for the 'transfer' of the funds from the Traditional IRA to the Roth IRA account. In addition, I will spend some more time with the statements and the rep to make sure that everything is on the up and up. Again, thanks for replying to my post.Comment
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If it was a non-taxable rollover of a traditional IRA to a Roth account (where all contributions were non-taxable), there would be no need to include it on the 2011 return.Originally posted by Hoosier View Post
Also, if the distributions were entirely return of principle (contributed funds), it would be a non-taxable distribution from the Roth account even if the account did not meet the 5 year rule.
See Pub 590 Are Distributions Taxable http://www.irs.gov/publications/p590...link1000231057
AND
Pub 590 Distributions of conversion and certain rollover contributions within 5-year period.
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SHOULD be included on Form 1040 somewhere
Disagree.Originally posted by mactoolsix View Post
Line 15a of Form 1040 can be a pesky PITA, regardless of what finally shows up on line 15b. Many people have learned this detail the hard way, when the CP2000 notices about unreported distributions start arriving.
And Form 8606, specifically Part II, may also become extremely important in the preparation of an accurate tax return for 2011.
FEComment
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FE - Maybe my post was misleading - what I meant was that a non-taxable rollover need not be reported - thus possibly no need to amend the 2011 return.Originally posted by FEDUKE404 View Post
I agree the distributions must be reported, even if not taxable.
Sorry for the confusion,
MikeComment
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I am a bit confused about this discussion. if this was a traditional IRA was it all deductible or all nondeductible and were 8606 forms submitted each year a contribution was made. if it was all nondeductible why did he move it to a Roth?Comment
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A thousand winding roads
Sticking with the original post and assuming no more than the information given, the direct answer to the question is the 2011 return should be amended with properly reporting the taxable transfer, and the 2012 fallout dealt with as if 2011 had been done correctly.
I did read with avid interest the introduction of non-assumptions, such as a traditional IRA with basis, and a possible no need to convert if bearing such. It's hard enough to get a straight answer without the introduction of complicating factors.
Yet I congratulate the thought process of those who are exploring the possible reasons for not getting a 1099-R. And I'll have to admit that the first such reason which came to my mind was erroneous information from the client. The odds favor this much more than they do failure of the custodian to issue a 1099-R.Comment
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Up against the SOL?
I b'lieve this Duke feller is iterating the opinion of most of us - namely, amend 2011 to report correctly, then report 2012 as it falls. This will no doubt result in a slug of money having to be paid to the IRS for 2011.Originally posted by FEDUKE404 View Post
HOWEVER, let's assume the event occurred in 2009 and no 1099-R was issued. And then the client disgorged the Roth account in 2012. Will our answer be the same? 2009 is outside the statue of limitations and given no other factors the client is not obligated to amend.
What is the client's obligation for 2009, and does this impact 2012? More important, what is the PREPARER's obligation??Comment
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Many people have done this due to the more favorable rules of a ROTH than traditional IRAs provide.Originally posted by taxmom34 View PostComment
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Penalty on Roth Distribution?
What would be the penalty for the $60K distribution from the Roth? 10% and ? I would assume that this is a 1099R, code J distribution?Last edited by zeros; 08-27-2013, 07:53 PM.Comment
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