1099-R for IRA 60-day rollover

[MarkM]

Client withdrew $20,000 from her IRA and deposited back into the same IRA within the 60-day window.

The 1099-R from Fidelity shows the full $20,000 as taxable in box 2a and code 1 in box 7 (early withdrawal, 10% penalty applies).

I've seen many 1099-Rs for direct rollovers ($0 in box 2a and code G in box 7), but I have never seen one for this type of rollover.

Is the 1099 correct to show it like that? I am worried that if I show this as nontaxable, it will generate an IRS notice for the mismatch.

[MarkM]

I should also add that my client called her advisor and he said that the 1099-R doesn't need to be corrected because the 5498 shows $20,000 in rollover contributions. I'm not sure if the IRS computers match the 5498s to the 1099-Rs.

I can understand it from the perspective that the company where the IRA withdrawal came from doesn't know what the TP is doing with the money, so they would have to report it as taxable and as an early distribution.

Has anyone ever dealt with this situation?

 

 

[Pacun]

Just change the code to G.

[jklcpa]

13 minutes ago, Pacun said:

Just change the code to G.

Well, this will end up with the proper tax result if the full amount was rolled over, but the notation will be missing from the face of the 1040 and the backup schedule will show the wrong code, if you do happen to print those for the client. 

If you want the software to print the proper notation of "ROLLOVER" in the margin near line 15 of the 1040, you should enter the 1099R information into the software with the code 1 so that the distribution is entered in box 15a, and also enter the amount of qualified rollover that was transacted within the 60 days. If the full amount was rolled over, then 15b will net out to zero. 

[Terry D EA]

13 minutes ago, Pacun said:

Just change the code to G.

Pacun I totally disagree. The way the OP stated the 1099R was completed is correct. The broker is required to report the withdrawal as a taxable distribution. The amount rolled over within the 60 day window is reported on form 5498 thus making the distribution non-taxable. The advisor is correct. Only other thing to add is look at the new rules with the 60 day rollover and be sure the client has not had a rollover within that last 365 days. 

[Jack from Ohio]

Just get ready for the CP2000 in about a year.

[Randall]

8 hours ago, Jack from Ohio said:

Just get ready for the CP2000 in about a year.

Yes, I just had one.  I requested the client to bring in account statements showing dates and deposits so I'll have it for my records.

 

[Pacun]

The end result is the same. That amount is not taxable and the 1040 will be correctly filed. If the IRS questions it, to which it has the right to do so, you will have to prove that the amount was deposited back. By the way, the IRS has the right to question every form you submit, including but not limited to W-2 series, 1098 series 1099 series. I do like jklcpa's comment so I think she has the correct answer.

What do you do with a form 1098 that reads that the tax payer paid 10K in mortgage interest and you find out that he didn't pay that amount of interest and he is not qualified to get the deduction? Do you call the bank to correct it so that the form shows 0? Or you simply (technically) correct the form and enter 0? How about if your client tells that their son paid the mortgage interest and that he has his taxes prepared somewhere else? Do prepare a Mortgage interest nominee form for the son so that his preparer can see if he qualifies for the deduction?

[Catherine]

1 hour ago, Randall said:

I requested the client to bring in account statements showing dates and deposits so I'll have it for my records.

I did this for a client a couple of years ago; she took the money to buy a new condo, and re-deposited it on Day 58 (or was it 59?); close but still inside the window.  While everything was fresh, I wrote the CP2000 response letter and had pdf's of all the support documentation.  When the IRS letter showed up, I opened the document, put on the current date, printed the whole kit and caboodle, and off it went.  Solved.  I wish we could write ahead for all these issues when everything is fresh!

[Terry D EA]

3 hours ago, Pacun said:

The end result is the same. (Agreed)That amount is not taxable and the 1040 will be correctly filed.(Disagree) If the IRS questions it, to which it has the right to do so, you will have to prove that the amount was deposited back. By the way, the IRS has the right to question every form you submit, including but not limited to W-2 series, 1098 series 1099 series. I do like jklcpa's comment so I think she has the correct answer. (She does and if you agree you realize your statement about the 1040 being filed correctly is wrong.)

What do you do with a form 1098 that reads that the tax payer paid 10K in mortgage interest and you find out that he didn't pay that amount of interest and he is not qualified to get the deduction? Do you call the bank to correct it so that the form shows 0? Or you simply (technically) correct the form and enter 0? How about if your client tells that their son paid the mortgage interest and that he has his taxes prepared somewhere else? Do prepare a Mortgage interest nominee form for the son so that his preparer can see if he qualifies for the deduction?

I do not arbitrarily make changes to documents client's present to me just because they say so. It is the client's responsibility to bring me accurate documentation and have corrected those documents that are not correct. As you stated, the IRS has the right to question everything. They compare what is submitted to them with the return that is filed. I guess we could apply the same logic to donations. Client's document shows he gave 2,000.00 to the church but says he gave 10,000.00. So instead of corrected documents just change it to what the client says?????? I don't think so. Not being disrespectful or argumentative Pacun, just simply stating my position. I don't like my clients to get CP 2000 notices nor do I like dealing with them.

[Pacun]

TerryD

This site is for us to discuss tax matters so you and I are just doing that. I do agree that we should file as accurate as possible but sometimes, as Jack said, you will get a CP 2000 no matter what and technically what they will have is a 1040 with a correct entry that it was a roller. No matter how we do it, during an audit, you will have to prove with bank documents that the money was put back. Do you agree that Judy has the best answer to this issue?

[Terry D EA]

Yes, I do agree Judy has the best answer and did state so in my earlier post. Also, I do agree that during an audit you have to substantiate everything. I am glad you have taken the position that we are just discussing this.  

[Gail in Virginia]

The problem with your solution, Pacun, is that a code G is for a direct rollover, what used to be called a trustee to trustee transfer.  That is not what this was.  This was a rollover, and that is what should be indicated on the return, IMHO. 

[Janitor Bob]

Can anybody advise how to enter this in the 2019 software?

[RitaB]

14 hours ago, Janitor Bob said:

Can anybody advise how to enter this in the 2019 software?

Greg (and MarkM from 2017), since the taxpayer took control of the funds, the issuer has no choice but to use Code 7 (or Code 1 if early withdrawal, as in MarkM's case).  I believe you'll need to enter an explanation within the 1099-R entry.  There's a tab down at the bottom named "Rollover Explanation."  I had to use it twice on 2019 returns.  I entered detailed information regarding dates and names of both investment companies involved.  I also keep copies of the proof that my client deposited the funds within the 60 days, because I figure odds are good that they'll get a letter despite the explanation.