1099 issued on 412i funds rolled to IRA
In process of terminating a clients 412i plan & moving the plan assets into his IRA, one of the annuities in the plan kicked out a 1099R for the amount of the proceeds of that particular annuity. The client/trustee of the 412i had requested by letter to liquidate the plan assets & issue him a check for the amount. The check was made payable to the retirement plan & endorsed to his IRA, where it was deposited almost immediately (well within 60 days).
We went back to the Insurance company to request a corrected 1099 but they refused due to their procedures for issuing 1099. They indicated that since a letter was issued by the owner of the retirement plan requesting distribution of all plan assets, a 1099R is automatically kicked out, regardless of the destination of those proceeds. It is worth noting that the other 90% of plan assets moved over to clients IRA without issue (that is without a 1099R being issued).
Does this 1099 automatically mean my client must pay taxes on the amound indicated on the form or can we convince the IRS that these proceeds were rolled over to his IRA (because they were)? How do you recommend I handle this?
Thank You
Permalink Submitted by Alan Spross on Fri, 2011-02-25 17:06
This is easily addressed by just reporting the rollover on the 1040.
Actually, a 1099R should be issued whenever a distribution is made and must be reported on line 16a of Form 1040. If the full amount is rolled over, then 0 shows on 16b, the taxable line and “rollover” is entered next to 16b. That erases any tax liability, but if there was any withholding taken out, the withholding needs to be replaced by the taxpayer to make the rollover complete. Therefore, all taxpayers must report these rollovers, unlike an IRA to IRA direct trustee transfer.
This insurance company is therefore correct issuing the 1099R. The question now becomes why the other assets were also not reported on a 1099R as well. The IRA custodian will be reporting rollover dollars received much in excess of the 1099R dollars and the IRS might question that difference.
Permalink Submitted by John Voigt Jr on Fri, 2011-02-25 20:06
Thank You!!