401 K distribution
Client’s former employer closes 401K plan in Sept 2012. Custodian prepares total distribution less 20% for Uncle Sam and files the appropriate 1099-R in January 2013.
Client comes in March with 1099-R and says he lost the check. Confirmed with custodian that it did not clear and they will reissue a new check for the net amount. How would you file for 2012 and 2013?
Permalink Submitted by Alan - IRA critic on Tue, 2013-03-26 20:07
He had constructive receipt of the check, but lost it. A replacement check issued now will not change the 1099R and his distribution is therefore taxable in 2012. The withholding will also be reported as a payment on his 2012 return. Obviously, he also missed his chance to roll over the distibution he received. If the distribution is large enough, he might consider applying for a letter ruling allowing an extension of the 60 day rollover deadline.
Permalink Submitted by Steve Pinkiert on Wed, 2013-03-27 19:13
What happens if taxpayer reports the 20% of withholding as income and treats the 80% (never received) as a 2013 rollover when the check is replaced?
Permalink Submitted by Alan - IRA critic on Wed, 2013-03-27 19:29
He could try it, and then pursue the letter ruling if the IRS detects the breach of the 60 day deadline. If he is going to do this, he might as well add the withholding to the rollover amount as well. IRA custodians do much of the 60 day deadline enforcement, but he will have a currently dated check so will not run into IRA custodian resistance. If he gets audited for any other reason, the IRS might disallow the rollover pending a letter ruling.
Permalink Submitted by Steve Pinkiert on Wed, 2013-03-27 20:21
The taxpayer is taking credit for the FWT because the govt. got it.