Spouse & 1099r

[TAX4US]

Spouse deceased in dec 2012. Husband receives 1099r in 2013 for left over pension paid out with Fed and state withholding on it in the deceased SS number. Form is from State pension and will not change or correct. I think this income should be reported by the husband as he received it but how do I get credit for the withholding? Need help on this one

[Koss]

1099-R to Decedent

There was a previous thread on a similar issue, but the fact pattern was a little different. It involved a loan from a 401(k) that was treated as a distribution after the person died. Here's the link to the thread:

http://forum.thetaxbook.com/showthread.php?23798-1099R-for-deceased

What I don't understand about your fact pattern is how the 1099-R was issued to the decedent. I suspect that the pension plan issued a check payable to the decedent, during 2013, and that the surviving spouse somehow cashed or deposited the check. Depending on your point of view, that could be a mistake.

If the spouse was named as the beneficiary of retirement plan, then he could have insisted that they reissue the check. But if the check was made out to the decedent and cashed, you are now closing the barn door after the horse is out. The plan will insist that the 1099-R is correct. Whether she was dead or alive, somehow she cashed the check, so the 1099-R must be issued to her.

If the husband cashed a check from the plan made out to his deceased wife, that wasn't necessarily improper or unlawful. But a deceased person can't endorse a check. The only reasonable way to interpret the transaction is that he endorsed the check in his capacity as executor of her estate.

If this is what happened, your best option may in fact be to File a 1041 estate return for the decedent. This will allow you to pass through the income and the withholding.

What is the distribution code on the Form 1099-R?

BMK

[Koss]

Further thoughts

If the check was payable to the surviving spouse, then the plan administrator is simply not following proper procedures. The 1099-R should be issued to the surviving spouse, in his name and SSN, with distribution code 4.

If this is what happened, I would do one of two things:

(1) Escalate the matter to the legal affairs team at the pension plan. Start by requesting an image of the cancelled check. Ask them to explain why the 1099-R has been issued to someone other than the payee.

OR

(2) Report the distribution and the withholding on the spouse's return. Attach the 1099-R, and an image of the cancelled check, and a letter explaining that the 1099-R was issued to the wrong person and that the issuer refused to correct the error.

But for the love of God, don't file that return electronically.

You cannot enter the withholding from the 1099-R on an electronic return. The 1099-R does not have his name or SSN. Using the 1099-R data for an electronic return would be a serious violation of the e-file regulations for Electronic Return Originators.

The return would have to be filed by mail.

BMK

[TAX4US]

Code 7 on the 1099r. i guess best way may be to use a 1041 and pass it all out including withholding?

[Roland Slugg]

This is an interesting situation, and I agree pretty much with Koss's analysis and suggestions. I believe the issuer of the 1099-R form needs to be shown the error of his ways and convinced to correct everything. I'll even speculate that when the facts are all laid out for the paying agent, that everything will be correctly resolved.

Having said that, post-death distributions from a retirement plan or IRA must, by law, be paid the the decedent/participant's designated beneficiaries. If there were no named benes, then the funds would probably go to the decedent's estate, unless state law provides otherwise. In no case should a check have been payable to the decedent. Nevertheless, that can and sometimes does happen, especially in cases where the disbursing agent is unaware of the death. Most of the time the interval between the person's death and the issuance of an improper check is short, and perhaps that's even true in your client's case. Unfortunately, it also happened to cross into a new year.

I would not report that distribution on a trust return, F-1041, unless a trust did, in fact, exist and was the proper bene of the funds in question.

[Koss]

Form 1041

I would not report that distribution on a trust return, F-1041, unless a trust did, in fact, exist and was the proper bene of the funds in question.

I agree that a trust return should not be filed unless a trust actually existed. However, Form 1041 is also used to file a tax return for the estate of the decedent. And there is an estate, even if it had no assets in it except for the pension distribution.

BMK

[Burke]

I don't know if the 1041 route will work, since they probably don't have an EIN for the estate, in the case of a surviving spouse. What will NOT work is to file a 2013 for the spouse alone, and try to get credit for withholding under the spouse's SSN. And they won't take a 1040 return for the deceased after the year of death.

I had the same dilemma years ago and inquired to the IRS about it. They told me the issuer had two options: (1) either re-issue the 1099R in the name of the spouse with the withholding on it; or (2) refund the withheld taxes to the spouse, and adjust their next reporting (945?) to the IRS. When I finally got a hold of a man in the Tax Dept who could control that sort of thing, and advised him I had contacted the IRS and these were his choices, he took Option #1. We filed the return with the corrected 1099R and everything went just peachy.

After all, when taxes are remitted to the IRS, they are not allocated to individual taxpayers. The 1099R's do that when the reporting entity files them. If they file a corrected 1099R, it will then be allocated to the proper party. Anyone who tells you they cannot issue a corrected 1099R is woefully misinformed. Koss is correct in that this was caused in the beginning by the spouse cashing the check. It should have been returned on the spot. It happens all the time. It's only when withholding is done, that it becomes a big problem.

[TAX4US]

What to do. If tax department will not fix is there such a thing as a substitue 1099r like the w-2?

[Burke]

First, have you tried to contact the tax department and read them the riot act? Move up the chain of command. Start with a supervisor. Go higher if you need to. They are the ones who have to fix this. You could always have your client write them a letter and threaten to inform the IRS they refuse to rectify the situation. Then they can deal with THEM.