1099 R Box 7 code P Help

[vegasbillea]

Client drop off their tax documents and in reviewing one 1099R box 7 with a code P.
I thought the excess contribution (401k) returned you had to do an amended return for the
previous year (2015). When looking at the instruction on the back for code P it gives "excess contribution and earnings taxable in
2016". My software is also warning that it is generally the taxable should have been included in 2015.
Question: is it taxable in 2016 or amend for 2015?

[Roland Slugg]

Look again at the year at the top of the 1099-R form. Is it a 2016 form, or is it a 2017 form? If it is a 2016 form, the explanation for Code P should read:

Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2015.

In your post you wrote that it says, "... taxable in 2016." The instructions would only say that if the 1099-R is a 2017 version, not the 2016 version. Or did you simply type the wrong year in your OP and not catch your error before posting it here?

If the 1099-R is, indeed, a 2016 form and says on the back under the explanation for Code P that the excess is a refund of excessive 2015 contributions, then do not report the amount on the T/P's 2016 return. Instead, he should file an amended return for 2015 if the excess/refunded was not taken into account when his 2015 tax return was filed.

Added note: For anyone with clients who regularly get a refund of excess contributions, it is a very good idea to delay preparing those people's returns until they receive the letter (and check) from their 401(k) administrator advising them of the excess contribution being or to be refunded. My clients who get these usually have them by around March 1st each year.

[FEDUKE404]

Excess IRA contributions may require an amended return

These things can get dicey.

If everything occurred in 2016, with 2016 funding being withdrawn in 2016 (before 12/31/2016) then there should be no prior year considerations. There would be a 2016 Form 1099-R, and likely some 2016 taxable income.

OTOH, if a person put funds into a Roth IRA in the spring of 2015, was not aware of "too much" until talking to his tax pro in the spring of 2016, and immediately fixed the problem before filing his 2015 tax returns, then he would indeed have a 2016 Form 1099-R with a "prior year / amend " code. (IRS takes the approach the "bad" income -- proportional to the total income earned by the investment account -- began in 2015 and continued until it was stopped in 2016.) I believe it is also possible, depending on dollar amounts and when the fix was initiated (and market conditions!) to have some *2016* taxable income to deal with, likely via a separate Form 1099-R, as part of the same withdrawal of excess funds.

To further explain, in the situation cited in the first instance above, if the problem was not resolved until "now" then there would be a 2017 Form 1099-R (arrives who knows when!!) referencing income that would be potential taxable in 2016 and thus necessitate an amended 2016 return.

After a few clients learned this tale the hard way, I've done my best to instruct them NOT to fund the prior year (2016) IRA accounts until sometime prior to 04/15/2017 when they can be assured of their dollar limitations, if any. This group would definitely include those who hurried down to the investment firm on January 2nd and put $6,500 into their Roth IRA accounts as a "new year routine.

FE

[vegasbillea]

Thanks for the Help

I have looked at the form, good idea to recheck - the form issued by BoA has top right "2016" Form 1099R
thus the issue.

[vegasbillea]

Thanks for the Help Part 2

Roland and FE you guys add much insight to various tax issues you respond to.
Looks like I need to contact the client and find out more what happened at his company.
Information posed was very helpful to have the discussion with the client.
Again, what confused me with the 2016 Form 1099 R with the P being
for 2016 year. I have done these before and like posted the P would show it was
for the previous year. I was looking for the P to have 2015 excess contribution so I
would do an amended return for 2015. With the form having 2016 top right and the
P stating excess contribution for 2106 through me off.
Again I want to thank to both of you for taking your valuable time
during tax season to respond.

[Roland Slugg]

A 2016 version of form 1099-R with Code P in Box 7 should refer to a refund of an excessive contribution for the year 2015. Thus, your client's 1099-R form contains an inconsistency. Either ....

(1) the version year of the 1099-R form is incorrect and should be a 2017 version of that form, or
(2) The reference should refer to a refund of an excessive contribution for the year 2015, not the year 2016, or
(3) The Code P is wrong and should be Code 8. Is the printing nice and clear? Take a real good look to be sure.

If none of the above is the case, you or your client will need to get the correct facts in order to know what to do.