1099r distribution codes

[Unregistered]

Hope you all can help.

Client got 2 1099-r's both have a distribution code of 2 (early distribution, exception applies)

one is for 51,500 from clients state pension
the other is 90,000 from an annuity
both are not IRA/Simple

My question is the client is under 59 1/2 he is 53 , shouldn't the distribution code be 1 for early distribution?
What do I do , do I file return without 5329 and without 10% penalty or do I calculate the penalty?
The pension I think might be right because of the equal and periodic distributions clause.
The annuity was cashed completely out. He said this was originally from a payroll savings plan.
He is now as of 2005 retired.
Any advise would be great.
Thanks in advance

[solomon]

File the way 1099-R's read.

[jainen]

Regardless

Regardless of what the 1099-R says, the taxpayer must report it as it really is.

[JG EA]

...The pension I think might be right because of the equal and periodic distributions clause.
The annuity was cashed completely out. He said this was originally from a payroll savings plan.
...

I assume the $90,000 was shown as taxable?

[Unregistered]

I assume the $90,000 was shown as taxable?

yes the 90,000 was the taxable amount.

I guess really i want to know do I take the 1099r's for face value or do I have to call the annuity company and find out what they were thinking?
Thanks

[Jesse]

Call the company

I would investigate the circumstances and report as it should be even if not as 1099R has it coded.

I had a new client for 2005 and in reviewing the 2004 return prepared by someone else found a 1099R to be in error w/ a code 7 instead of 1. The previous preparer questioned the code but still reported using the code 7.

I prepared a 1040X explaining the situation and told them not to be surprised if somewhere down the line they might receive an IRS adjustment so they could take care of it now or wait for the dreaded letter which may or may not come.

This April they received a corrected 1099R from the issuing company. They did not send in the amendment w/ money due and but I am sure that they will now get a bill from the IRS and probably then from their state as well.

[JG EA]

72q

So, if the $90,000 is taxable, and if the taxpayer is not dead, disabled, the payment is not in a series of substantially equal payments, then could any of these apply?

72(q)(2)(E) from a plan, contract, account, trust, or annuity described in subsection (e)(5)(D),

72(q)(2)(F) allocable to investment in the contract before August 14, 1982,

72(q)(2)(G) under a qualified funding asset (within the meaning of section 130(d), but without regard to whether there is a qualified assignment),

72(q)(2)(H) to which subsection (t) applies (without regard to paragraph (2) thereof),

72(q)(2)(I) under an immediate annuity contract (within the meaning of section 72(u)(4)), or

72(q)(2)(J) which is purchased by an employer upon the termination of a plan described in section 401(1) or 403(a) and which is held by the employer until such time as the employee separates from service.

I don't know what most of these are, but hopefully the company will know one of them applies when you call them.

[Unregistered]

thanks to all , I will call.

[Donanita]

Flip Side

Regardless of what the 1099-R says, the taxpayer must report it as it really is.

If the 1099R had a code 1 and the taxpayer qualified for the code 2 or 7 would you still report as it really should be. How soon would the taxpayeget a letter from the IRS for the 10% penality. No I would have the taxpayer contact the company and get a corrected 1099R.

[DaveO]

I would research carefully

Annuity and pension rules have changed a great deal over time. The pre-TEFRA rules are quite different than todays rules.

Getting through to the IRS is another matter. I recently worked CP-2000 notices for related taxpayers. They had the same situation regarding an early withdrawal, partial rollover and a IRA contribution. They each had cashed out an IRA, kept some of the money and redeposited the rest into a new IRA with 60 days. They also had claimed a $3,000 contribution to a traditional IRA when in fact they only contributed $2,500. The investment company issued 1099-R forms with code 1. I prepared responses to both notices showing the redeposit of funds and requested the IRS recalculate the tax and penalty due and issue a corrected statement. One taxpayer got the correct notice reducing the balance due from $4000 to $400. The other got a closing letter.
Go figure!

[Unregistered]

I think I figured it out.

The 90k annuity was initially a 457(b) plan that the client rolled over to an annuity once he retired. Per 1099r instructions page R-9 " Generally a distribution from a governmental section457(b) plan is not subject to the 10% additional tax under section 72(t)"

Client told me that he had what he called a thrift savings plan . I asked him if it could have been a 457(b) he stated he thought thats what it was. But that he and his fellow workers refered to it as a thrift savings plan.

Does this sound right to any of you?