Civil Service (CSA) Pension Plan

[NOD]

A taxpayer, who prepared their own tax return, and they did not know about the contribution exclusion from income.
She went several years without deducting any of her contributions.
Does she loose those contributions?

In approximately 2006 three years were amended. She has been taking the exclusion every since.
She has not used up all of her contribution cost, but a CPA told her she has to lose the rest of it

[spanel]

A taxpayer, who prepared their own tax return, and they did not know about the contribution exclusion from income.
She went several years without deducting any of her contributions.
Does she loose those contributions?

As with anything, you can amend them and request a refund up to three years of the due date.

Chris

[NOD]

Civil Service (CSA) Pension

In approximately 2006 three years were amended. She has been taking the exclusion every since.
She has not used up all of her contribution cost, but a CPA told her she has to lose the rest of it.

[Roland Slugg]

No, she doesn't lose the rest of it. Why would you think that? I believe the deduction ... i.e. the offset against the gross amount received ... is 1/30th of her total contributions. (Think of is as "basis.")

She should track her remaining basis, reducing the unrecovered balance each year until it is gone, sort of like depreciation. So she started a few years late. NBD.

Some 1099-R forms show the retiree's contributions and also show the taxable portion of each year's total right in box 2a. If her 1099-R has that information, maybe she has been reporting the correct taxable amount all along.

[FEDUKE404]

Calculating recovery exclusion

No, she doesn't lose the rest of it. Why would you think that? I believe the deduction ... i.e. the offset against the gross amount received ... is 1/30th of her total contributions. (Think of is as "basis.")

She should track her remaining basis, reducing the unrecovered balance each year until it is gone, sort of like depreciation. So she started a few years late. NBD.

Some 1099-R forms show the retiree's contributions and also show the taxable portion of each year's total right in box 2a. If her 1099-R has that information, maybe she has been reporting the correct taxable amount all along.

I've seen both sides of the civil service issue.

Client A, now quite old, retired many moons ago. At the time of his retirement, the exclusion amount was calculated (by me, by hand) and it now has been used up. ALL is taxable to him. IIRC, there was never an entry in "taxable amount" on the Form CSA-1099-R.

Client B retired within the last five years. The Form CSA-1099-R DOES have an amount shown as "taxable amount." For the first couple of years, I worked through the Simplified Method worksheet, and my calculated numbers were reasonably close to the "taxable amount" already shown on the Form CSA-1099-R. I now just use the "taxable amount" and move on.

I do not know when the "Office of Personnel Management" in Boyers PA started doing the calculations. But I would advise against (possibly) doing them twice!

As for recovering the lost years (paid tax on all??) I agree that, except for returns that can be amended, those exclusions are lost. (You cannot take "extra" to make up for the lost years.) My suggestion would be to create/use the Simplified Method worksheet (should be present in any professional tax software package. . .certainly in Pub 17), create a "Year #1" scenario (unused) and just work forward. With deference to Roland Slugg, I believe the recovery months can vary when considering age, single/multiple survivor, etc. For Client B, the number is 260 months. Be careful!

FE
:

[Burke]

As for recovering the lost years (paid tax on all??) I agree that, except for returns that can be amended, those exclusions are lost. (You cannot take "extra" to make up for the lost years.) :

I don't believe Roland is suggesting that the taxpayer take "extra" amounts in the year reported. TP would just have an extended period to claim all remaining contributions, should he live that long. He would still exclude the amount each year which should have been taken using the Simplified Method of accounting from the beginning. If he dies before they are all used up, then they are lost.

[FEDUKE404]

Extend recovery period ?

I don't believe Roland is suggesting that the taxpayer take "extra" amounts in the year reported. TP would just have an extended period to claim all remaining contributions, should he live that long. He would still exclude the amount each year which should have been taken using the Simplified Method of accounting from the beginning. If he dies before they are all used up, then they are lost.

I neither have a dog in this hunt nor time to research it, but . . . .

I would tend to disagree with your conclusion.

It would seem "the clock" would start running when the pension payments were first made, and not several years later when the client woke up and realized he could claim some reductions in the gross amount.

Could be wrong. . .could be right.

FE

[Burke]

He was entitled to exclude them from tax from the beginning, but apparently did not do so. The IRS rules require the excluded amount must be figured at the beginning. It also says he deducts the basis until his cost is recovered. There is no time limit mentioned although the calculation uses one to figure the yearly amount. Therefore, he has remaining basis for those years he did not exclude. I think I am right.