IRA rollover

[LARRYBOY]

If someone takes a distribution from an IRA and they have the check made payable to them and put it in another IRA within the 60 days it is not taxable. However the 1099R has a total distribution listed and a 7 in box 7. It shows taxable on the return, when the 1099r is put in. It should not be taxable, how is this reported? Should a rollover code be put in box 7? This wont match the information sent to the IRS, or is it reported differently?

[DMICPA]

Ira

You are correct. If you change the code it will not match.

Perhaps another way to do this is to report what the 1099-R indicates and on the other income line of the 1040, Line 21, back out the amount of the distribution and attach a statement explaining the facts of the withdrawal and how it was re-deposited within the sixty days.

I have spent much time doing correspondence audits with the IRS concerning the IRA funds that were taken out by check. I encourage clients to have a direct transfer or code G and there is no problem. And I believe you can only do one transfer other than a code G per year.

Sometimes I do not e-file those returns as I attach copies of the checks and other documents proving the sixty day limit.

[joanmcq]

Your software will have somewhere to enter that it is a rollover. What are you using and maybe someone can help. You do NOT change the code.

[DMICPA]

Rollover

If you use the software to report the rollover, that may not stop the IRS from sending a notice because they see a code 7. An explanation may keep this from happening.

[appelman]

Indirect rollovers are always coded 1 or 7,

The payer only knows they are giving out the money. Don't forget that if there is withholding, and there usually is, the payee must report it as income unless they makes up the amount in the funds redeposited. If done correctly, the software flags it as a rollover and does not show a taxable amount. That doesn't necessarily prevent a mindless CP-2000, though I can't believe they send one out for EVERY indirect rollover. Still, I would let the software handle it and not improvise. I wouldn't consider it justification for paper filing. You could, if you want, file a disclosure on Form 8275.