IRA Trustee to Trustee transfer not generating 1099?

Submitted by Jon Steffen on Fri, 2019-03-08 15:02

I’ve done this 50 times with clients and the original IRA institution always sends a 1099-r for the transfer.

I recently did the same thing with a client. Did a trustee to trustee transfer from company A to Company B, IRA to IRA, and company A is now saying that because this was a trustee to trustee transfer, they will not generate a 1099-r for the client.

The client’s CPA is saying he needs this 1099 to complete her taxes, even though we’ve gone over this is a non-taxable IRA to IRA transfer. He insists he needs to provide the 1099 with her return.

I’m at a stalemate. He won’t do her taxes without 1099 and Company A won’t generate a 1099.

Who is right? Can you direct me to any IRS guidance that expalins who is right?

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Permalink Submitted by Alan - IRA critic on Fri, 2019-03-08 16:00

No 1099R is to be issued in a trustee to trustee transfer, and no 5498 is to be issued by the IRA custodian receiving the transfer. While there is occasionally an error made, it does not seem possible that you could have had this happen 50 times in the past. See p 6 of the 1099R Inst. Perhaps some of the transactions you refer to as transfers include conversions to Roth, direct rollovers from employer plans or to employer plans, or recharacterizations of contributions. Those are not treated as non reportable transfers between IRA accounts.
The more restrictive one rollover limitation per 12 months means that a 1099R for a direct transfer creates the impression for the IRS that the funds were distributed (a transfer is NOT treated as a distribution), and therefore could violate the one rollover limitation. Therefore, if you have custodians issuing 1099 R forms improperly, you should ask them to issue a corrected form. Otherwise, you may have to take up this question with the IRS and prove that the funds actually moved by direct transfer.
If the issuer of a 1099 R in error will not correct the 1099R, the CPA has two choices. First, he could ignore the 1099R and include an explanatory statement that the funds were moved by direct non reportable transfer between IRA accounts, or if you have a 60 day rollover open (have not done one in the past 12 months from the distribution date) he could report it as a rollover and there would be no problem – until it happens again before the 12 months is up. Another option is to have it reported and still include an explanatory statement that the 1099R should not have been issued because the funds moved by direct non reportable transfer.
It is possible that you have the wrong impression of what is a transfer. A direct transfer is done with a check payable to your IRA custodian FBO you, not payable to you personally. It can also be done electronically between custodians, or with a check payable to your new custodian but mailed to you for delivery. Banks are often the custodians who make these errors, not brokerage or mutual fund firms.
In any event, IF the transaction you are now debating was an actual transfer, the custodian is correct not to issue a 1099R and the receiving custodian should not issue a 5498, although the 5498 would not be produced until May.