1099 for IRA to IRA Transfer–Huh?
Last year I did a Trustee to Trustee transfer (From T. Rowe Price to a new Trustee) for my Client. She is now meeting with her tax preparer and her tax preparer is telling her that there should be a 1099 issued. T. Rowe Price said no they don’t issue a 1099 for a Trustee to Trustee transfer because there is no taxable event.
I told her that it is definitely not a a taxable event and that I was pretty sure that as T. Rowe Price said, there would be no 1099 needed. I know that PUb 590 unequivocally says that it is not a taxable event but I don’t know where anything says a 1099 is not needed other than by inference it doesn’t say it is required for this situation.
I do see in 1099 instructions that IRA distributions require a 1099, but this was not a distribution. I am guessing that the tax preparer may be confusing it with Qualified Employer plan direct rollover. Even though those are not taxable events either, it looks like they still call it a distribution, so if it had been from an employer plan direct rollover would there have been a 1099 filed even though no taxes owed?
If so I could see her tax preparer’s confusion and I could discuss it with her tax preparer and we could clear it up. Otherwise, what should I tell them?
Lee
Permalink Submitted by Alan Spross on Tue, 2011-03-01 01:16
T Rowe Price is correct and the tax preparer is incorrect.
Note the “Transfers” paragraph on p 5 of the 1099R Inst, which you can provide as a cite for the preparer:
http://www.irs.gov/pub/irs-pdf/i1099r_10.pdf
You are probably correct that the preparer is confusing this with an employer plan rollover which must always be treated as a distribution and rollover. Every so often an IRA custodian will report a transfer when they should not. That forces the taxpayer to report the rollover on the 1040 and also causes the taxpayer further problems if they want to do an actual rollover later on, since they are limited to one per 12 month period. Making a transfer appear to be a rollover causes the taxpayer to come up with documentation should the IRS ever inquire. Fortuneately, they almost never do.
Permalink Submitted by Lee Martinson on Tue, 2011-03-01 01:49
I don’t always reply with a thanks because it just busies up the system. But.. as usual you guys are awesome and helpful and I thank you for now and the past and the future!!!