I’m not fully up to speed in terms of information on Forms 5498 and 1099-R and how the IRS is able to determine improper rollovers or beneficiary IRAs.

I’ll use a specific example and maybe someone here can walk me through it.

Joe Taxpayer dies in 2016 with 3 separate IRA accounts naming his living trust as beneficiary. Trustee takes lump sum distributions on behalf of the trust in the first quarter of the year and deposits them into a regular bank account in the name of the trust. In the last quarter of 2016, trustee sends checks to financial institutions payable to Inherited IRA of Joe Taxpayer FBO Trust Beneficiary. Trust receives 1099-Rs from custodians showing the distributions as fully taxable, however does not report this on the trust return, but instead includes a schedule showing that the trustee acted as nominee to pass through the distributions and includes self prepared 1099-Rs from the trust to beneficiaries showing the amounts as non-taxable. These self prepared forms were included with the return, but not submitted to the correct IRS processing center.

Will the IRS catch this? If so, how?