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RMD required? No documentation found for old distribution erroneously rolled into IRA


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Participant terminated from company in 1985 and requested her distribution be rolled over into a taxable account.  Funds appear to have erroneously been rolled into an IRA and no one has any records anymore; individual tax returns were shredded, brokerage company was sold to another, previous Employer no longer has records.  IRS and FTB say they don't have 1099s going back that far. Participant is now required to take RMDs.  Is there any way to avoid taking an RMD from the IRA into which the funds were erroneously rolled over?  We can't find anything to support the claim that an error was made.

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The funds are in an IRA, they are subject to RMDs.

Now if the owner can show a basis then the basis can be recovered tax free but I believe a proration is required. I mean this person has had an IRA account for 38 years and is just now figuring that out? If the funds were erroneously put in an IRA you likely have bigger tax problems like the the annual excise tax on excess IRA contributions.

And I'm unfamiliar with the term "rolled over to a taxable account" a rollover is usually associated with a distribution to an IRA or other tax qualified account a distribution to a taxable account is usually just called a taxable distribution.

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Thanks, Lou - I have no idea why they didn't notice it before, but the issue is whether there is any way to find records going back that far. Is there any source that we haven't explored?

To clarify, she believes she requested a taxable distribution, but it appears the funds were rolled into a pre=tax IRA.

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In 1985, few employment-based retirement plans provided the convenience of paying a distribution as a rollover contribution directly to another retirement plan or an Individual Retirement Account.

About what happened or what was reported, the individual might request from the IRS a copy of her 1985 tax return (and of later years’ returns). Form 4506 https://www.irs.gov/pub/irs-pdf/f4506.pdf.

Consider whether the individual’s tax returns over many years might have been filed under an assumption that the account was an IRA. If so, consistency might require a taxpayer not to assert a different treatment now.

See, for example, Estate of Hilda Ashman v. Commissioner, Tax Court Docket No. 15578-96, T.C. Memo. 1998-14575 T.C.M. (CCH) 2160, T.C.M. (RIA) 98,145, 22 Empl. Benefits Cas. (BL) 1283, Pension Plan Guide (CCH)  23943M, 1998 Tax Ct. Memo LEXIS 146, 1998 WL 188936 (U.S. Tax Court Apr. 22, 1998) (In 1990, a distributee received a distribution from a qualified pension plan, and her tax return treated it as rolled over to another plan. For 1993, the taxpayer was estopped from asserting that the 1990 distribution was taxable in 1990.).

See generally R. H. Stearns Co. v. United States, 291 U.S. 54 (1934) (by Cardozo, J.).

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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