60- day rollover straddling two callender years. | Ed Slott and Company, LLC

60- day rollover straddling two callender years.

A client received IRA distributions in late December, 2009. He rolled the money in January, 2010. The companies involves issued 1099s and 5498s respectively in 2009 and 2010. IRS sent him a notice that he owed taxes on the 2009 distributions. He sent the explanation that the rollovers straddled two calender years. He included copies of the 1099s and 5498s, copies of checks, statements, etc - basically, everything to prove that the rollovers were done within 60 days except original documents (only copies). IRS rejected his claim and stated that the year on the 1099s and 5498s must match. The companies involved said they must report for the year the money was distributed/received. IRS is demanding payment of a bunch of mpney - a big bunch. Any suggestions on how to proceed?

Are you sure the problem is not related to the one rollover limitation per 12 months, rather than the calendar year issue? As for both the 60 day rollover deadline and the one rollover rule, both these limitations span different calendar years, so there are going to be many cases when the 1099R and 5498 forms are issued for different years. If this is the issue, refer the IRS to 2 (b) of the attached IRS Regulation 1.408-4: http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_... I thought the problem might be the one rollover limitation since your post referred to "distributions". If the distributions were from different IRA accounts, then no problem. But if they were from the same IRA account and taken on different days, then the one rollover rule becomes a problem. It is somewhat surprising that the IRS is looking into this since they never get actual dates unless they ask for them from the taxpayer. However, the problem most likely was caused by the IRS looking only at the 1099R and not finding a match, followed by a lack of knowledge of the rules once they were provided with the rest of the info by the taxpayer. At this point, while there might be a "one rollover" problem, it sounds like the IRS is focused on a problem that does not exist if they specifically think that the calendar years for the 1099R and 5498 must be identical.

Thanks for your input. The multiple distributions are from different accounts. You are correct, IRS is focusing on the fact that the 1099s and 5498s do not match up even though they have been provided copies of documentation that the rollovers (multiple distributions, ond reinvestment) were done within 60 days and it is a problem because they have demanded payment unless the years for the 1099s and 5498 match. What should we do, demand escalation?

Yes. Insist that the decision be elevated to the appropriate IRA resouce within the IRS, and provide the cite I posted in the prior post. I would expect that a knowledgeable agent would be able to look at the documentation for 5 minutes before determining that the rollovers were allowed. Client will then get the usual "we are pleased to tell you that.....etc" letter. :( without an apology of course).
 

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