I'm dealing with an issue that has occurred over the past nine years. The TPA of our NQDC plan, a bank, issued 1099-Rs to report distributions made to our ex company President (not an owner). Last year it was realized that the company should have been issuing W2s to the ex employee once his distributions began back in 2011. We worked with our tax accountant to rectify the situation for the previous three years. We submitted W2s and paid FICA taxes on the distributions but did not report federal income withholding taxes. The problem is that the ex employee has received a letter from the IRS stating that he underreported income. The reason is because his total distribution was reported twice - a W2 from the employer and a 1099-R from the bank (TPA). I'm trying to convince the bank to void the 1099-R. Their argument is that they withheld income taxes and it needs to be reported. Has anyone dealt with this issue? Can anyone provide a good argument to provide to the bank?
