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Late reported deaths - tax reporting


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Can you please let us know how you handle late reported deaths concerning 1099-R tax reporting?

Example:  Annuitant dies in 2013, benefits are paid by direct deposit, spousal beneficiary never reports the death to the pension group until 2017.  (SSA master file did not have death)  All the time the pension group was reporting the income for 2013 through 2016 under the deceased person. 

Would you issue corrected 1099's all the way back to the member's death year, and then issue new 1099's from that point forward under the survivor's tin for each specific year?  Or, report the whole amount received from the death forward on a current year 1099?  (with keeping constructive receipt in mind)

Can the tax withholdings from the prior years be "transferred" from the deceased person to the surviving spouse for 1099 purposes?  What about 2013 being a closed tax year, or if the death was many years prior?

It would be hard to understand how their tax returns would accurate.  Unfortunately this happens more frequently than one would think. (an issue with direct deposit being too automated and occasional dishonesty)

We haven't been able to find much guidance on how to proceed for the tax reporting.

Thank you!

 

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My first question is whether the spouse/beneficiary has committed fraud.  But perhaps you've already gotten past 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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Especially if the form of payment was 50% J&S and the post-death payments should have been halved. I would ask a tax professional rather than a retirement plan professional.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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There doesn't appear any type of fraud was committed.  Again, with direct deposit there isn't an incentive for a survivor to contact us if the funds were going into a joint account.  A paper check would be much different, then I'm sure we'd receive contact right away.  It was a joint survivor annuity with 100% continuance.

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Aside from questions about how an employee-benefit plan gets recoveries for a person's acceptance of payments if he or she was not entitled to, let's focus on Brian's query about tax-reporting.

Does the reporter have a tax-reporting error that it must correct?  If the 1099-R that was filed accurately reports the name and taxpayer identification number of the payee to whom the payer sent a payment, does the fact that a different person received the money mean that there is a tax-reporting error and that it is one the payer or reporter is duty-bound to correct?

And if a payer might volunteer to change the tax-reporting for amounts paid in previously-reported periods, how easy or difficult is it to do so?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I don't know the answer to the original question, but my hunch is the total income appears to have been reported correctly, but not under the correct SSN.  Due to nature of the 100% J&S, one might be tempted to suggest that the IRS has experienced no "harm", so just fix the problem going forward; however, I'm not going to suggest it, since other facts may be relevant: (1) did the death get reported on the next 1040 filing? (2) did the husband accept the income and also continue filing jointly each year (i.e., fraud)? (3) did the spouse remarry? (4) other facts relevant to the spouse's tax filing? (5) etc.  Someone needs a tax advisor to ask all these questions, and that someone is not the plan administrator.  However, the PA needs advice on whether it should issue revised 1099's.

Back to the original question: "how you handle late reported deaths concerning 1099-R tax reporting?"  The answer may depend on who is asking: (a) are you representing the payor or the PA, and now you are trying to get the payments and 1099 correct? (b) are you the tax advisor for the spouse? (c) etc. 

I would be shocked if the IRS has not experienced this exact fact pattern, and already has the answer.  Perhaps there is a vehicle for asking this question directly, or the aforementioned tax advisor also knows.

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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I have not researched this question at all but my gut reaction is that since our taxes are determined on an annual accounting basis (typically the calendar year for individuals), then you will have to go back to the year of death and issue corrected 1099s from then until 2016.  If the beneficiary has been reporting the income all along, then it shouldn't be a big deal.   Of course, there are probably a dozen other things that could have gone wrong that aren't covered in this question. 

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