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Penalties for incorrect address on 1099


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I have a question on this as it relates to new mandatory rollover rules.

In a conversation with someone who handles 1099 reporting, it appears that the IRS imposes a penalty of $50.00 if a 1099 has an incorrect address. I'd like to explore how this relates to the new mandatory rollover rules.

Suppose a Plan Administrator sends a distribution kit to the last known address of a terminated participant. Everything is done correctly, SPD's disclose mandatory rollover rules, 402(f) notice, etc....

After 30 days, or whatever "reasonable" period PA has selected has gone by, the PA processes a mandatory rollover to First National Bank of East Overshoe in the name of the participant. Everything has been done in accordance with the IRC, and the DOL safe harbor regulations.

Now the PA does the 1099. But it turns out the address of record is incorrect. Not an unlikely occurrence in these situations. It appears PA is fined $50.00 when the IRS does its annual "audit" or whatever it is called.

1. Is this true, or am I misunderstanding?

2. Does the PA have any recourse? I am given to understand that they do not.

3. Can this expense be reasonably charged to the plan? Seems difficult if the participant's account has already been completely liquidated - I'd say no.

And as an editorial comment, if the above scenario is correct, it really stinks if the PA is following the law and DOL safe harbor, and still gets fined.

Comments or discussion? Thanks!

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You are scaring me. In 20 years I have never put an address on a 1099. I prepare several hundred each year.

I have never heard a word of complaint from the IRS.

CBW

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... I have never put an address on a 1099.

Why not?

Assuming we are talking about the 1099-R, here is the form:

http://www.irs.gov/pub/irs-pdf/f1099r.pdf

And instructions:

http://www.irs.gov/pub/irs-pdf/i1099r.pdf

Perhaps Belgarath can elaborate on this “fine".

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Two of the exceptions to the penalty listed in the 1099 instructions state:

1. The penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect. In general, you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. You must also be able to show that you acted in a responsible manner and took steps to avoid the failure.

2. An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee’s tax return, or from otherwise putting the return to its intended use. Errors and omissions that are never inconsequential are those related to (a) a TIN, (b) a payee’s surname, and © any money amount.

I would be comfortable in Belgarath's situation if reasonable efforts are made to maintain correct address records for participants.

I would not be comfortable in Earl's situation where the addresses are merely omitted.

...but then again, What Do I Know?

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The comments from WDIK are not in the instructions for the 1099-R, but can be found beginning on page 6 of this.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Thanks for the responses. And based upon this, I questioned further how and when the penalties were imposed. Turns out the folks I was talking with were incorrectly lumping this situation in with a situation where there is a TIN/Name mismatch.

Whew!

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