Errors in my 1098-R from my broker

Submitted by James Jones on Thu, 2016-01-28 06:33

I made a Roth conversion in 2015 and recharacterized it later in the year. The 1098-R that I just received has a code R in box 7 which means that the original conversion was done in 2014.

My investment has decreased in value and I transferred the entire amount back into my traditional IRA. However the form just shows that amount that was transferred back, not the loss in investment so that the recharacterized amount is less that the converted amount.

I have informed my broker about the problem and they have sent the info to the back office company (NFS). However NFS will not change the 1098-R. The reason that I got back had nothing to do with my request. My broker says that they cannot help me resolve the info and I cannot speak directly with NFS.

So I am left with either filing a complaint with FINRA or the IRS or just filing my taxes with a note indicating the error in the 1098-R. Will following the last path likely cause me grief with the IRS?



Submitted by Alan - IRA critic on Thu, 2016-01-28 16:30

  • Did you complete a 2014 conversion at all? Could the distribution have been taken late in 2014 but not contributed to the Roth until 2015?  Did you receive a 5498 in May, 2015 for any 2014 conversion contribution?  These questions are intended to determine if the R code is incorrect or whether there is another explanation for it. 
  • With respect to the dollar amounts shown on the 1099R, this reporting is correct. The custodian is to show the dollar amount transferred back to the TIRA, not the dollar amount you recharacterized. You are to include an explanatory statement with your return indicating the date and amounts of the conversion, the date amount of the conversion that you recharacterized, and what the conversion was worth when transferred to the TIRA. The latter figure is what will show on the 1099R.  Note that if there is a loss on the conversion the amount transferred back will always be less than your conversion, but if you requested a full recharacterization, it will erase the tax impact of the entire conversion. And if the R coding question cannot be explained, is incorrect and will not be corrected, there is a good chance that the explanatory statement can be expanded to address that issue as well.


Submitted by Ben Meyer on Sat, 2016-01-30 22:38

  • The IRS also provides a process for a situation where an issuer of form 1099-R has issued an incorrect form 1099-R and fails to correct the error.  The IRS process involves the use of form 4852, titled “Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.”  I should say that I haven’t been involved in actually using this form, but it seems to address the issue here.
  • You should be able to use form 4852 if the conversion was actually initiated and recharacterized in 2015, with an incorrect code R in box 7.  The correct code should be code N, assuming both the conversion and recharacterization were both done in 2015.
  • In order to use form 4852, you must first make an attempt to get the issuer to make a correction, which it appears you have done.  You might want to try again, being sure to give the date of the conversion in 2015.  If the conversion was initiated late in 2014, the action taken might be correct.
  • Then you need to call the IRS after February 14 to report the error.  You will need to tell them the date of the conversion in 2015, and also the date of the recharacterization.  According to the procedure, the IRS will then attempt to contact the issuer to secure the needed correction.  The IRS will also send you a copy of form 4852 which you can complete to serve as a substitute corrected form 1099-R.  It appears that you can only submit form 4852 with your return if you first report the error to the IRS and receive form 4852 from them.  If the issuer sends a corrected form 1099-R in response to the IRS intervention, you should use it for your return instead of form 4852. 
  • The IRS information page describing the procedure is on the IRS website at: https://www.irs.gov/uac/About-Form-4852
  • The full instructions are on the form, available at:  https://www.irs.gov/pub/irs-pdf/f4852.pdf
  • This procedure is sort of unusual, so you should be sure your version of the facts are correct, and that the issuer of the 1099-R has truly made a mistake before going this route.

 



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