1099R coded wrong? I dont think it was?
Hello,
A client requested funds from her IRA to be sent back to a the state retirement system after retiring and then going back to work. She was using these funds to purchase back time in her pension. All paperwork was sent to the B/D and proper State office which sent a letter of acceptance for the funds. The client received the 1099 from B/D and it shows the taxable amount not determined and a distribution code as 7. The client filed their taxes with the CPA and he picked the entire amount up as a taxable distribution. The client is saying that we are responsible for this “mistake” even after we requested that there be a corrected 1099 and the B/D sent a corrected 1099 showing all Zeros with a distribution code 7.
There is nothing else in my opinion that could be done by us am I correct? Should the CPA explained that it was a transfer or rollover on the tax return? or Shouldn’t the CPA file an amended return ? The client called this morning screaming at our employee and all of our paperwork shows that it was done properly. I am very confused by this. Any advice would be appreciated. Thank you
-Lewis
Permalink Submitted by Alan - IRA critic on Mon, 2022-05-02 17:08
If a distribution to the client was made and the client did a 60 day rollover, the first 1099R was correct, and the 1040 should have shown a rollover on line 4 to eliminate taxes on the distribution. The latest 1099R cannot be correct because there was either a distribution or a direct rollover, in which case the 1099R should have been coded G, but still reported on Form 1040 in the same manner as the distribution, but with an explanatory statement because the SRS does not issue a 5498 for a rollover contribution. The revised 1099R is not correct because it leaves no report of the distribution and a non reportable transfer is only valid between like kind IRAs. There must be a 1099R for this rollover showing a value (not 0), but there should be no taxes due.
Sounds like a breakdown of communication between client and the CPA, as CPA does not appear to understand that a rollover was completed. That’s true whether it was a 60 day rollover or a direct rollover. Your firm might have determined how the IRA distribution was requested. Client either received a check payable to client or a direct rollover check payable to the SRS FBO client.
Permalink Submitted by Lewis Young on Tue, 2022-05-10 17:40
Alan, The B/D will not code the 1099R “G” they will only issue the 1099R with a “7” code even thought the IRA check was made payable and sent directly to the SRS. How do you file this? Thank you for your help.
Permalink Submitted by Alan - IRA critic on Tue, 2022-05-10 18:24
The apparently incorrect 1099R should be reported on line 4a of Form 1040, with 0 on 4b and “rollover” on the line next to 4b. An explanatory statement should be included explaining the rollover including the amount and date with the 1040X which will be required to erase the taxable income and secure a refund. It is going to take a long time for the IRS to issue a refund if the client has paid the taxes. The client may now have a dispute with the CPA over the fee for filing the 1040X.