Recharacterization: 1099-R Year?

[Guest reg_h2b]

What year should be used on the Forms 1099-R and 5498 if the recharacterization occurs after the deadline?

Facts:

1. Roth converted in 1998. Owner dies 9/1999.

2. Executor elected to recharacterize Roth on 12/31/99 (which was the deadline). Custodian does not make the transfer in time.

3. After receiving the positive PLR, Custodian makes the actually transfer in 12/2001 completing the recharacterization.

4. Custodian sends us (and IRS) the "2001"1099-R's that record the distribution. No doubt they also sent the IRS "2001" form 5498 recording the contribution.

5. PLR says we must amend decendent's 1998 tax return to complete recharacterization.

6. After the recharterization transfer, a spousal rollover was completed, then the spouse did a roth conversion. These three actions were all completed in 12/2001. (IRS orally told us that the 30 day rule would not apply in this case).

Question#1: The PLR does not say WHAT YEAR the 1099 and 5498's should be coded: 1998?, 1999, 2001?. In other words is it recorded "as if" the transfer had occured on the deadline date ("1999") or when the transfer actually took place after the deadline ("2001")?

Question#2: Before I was thinking that it couldn't be 2001 on the 1099-R because that would invalidate spouse's Roth conversion in 12/2001 (30 day rule). But reg 408A-5 Q&A-9 is not clear if this 30 day rule is applicable when the owner/estate who recharacterizes is different than the second IRA owner (spouse) who converts. Does the 30 day rule even apply when the owners, as in this case, are different?

Reg

[Appleby]

The custodian of an IRA must report any distribution in the year it actually occurs. This includes conversions (distribution and rollover to a Roth) and recharacterizations.

I have seen a few of these PLRs. In those that I have seen, the IRA owner is granted an extension up to six months after the issue date of the PLR. Considering the extension, then providing the recharacterization is processed by the deadline of the new extension, the custodian is acting in compliance.

The other issue is that recharacterizations, though they must b reported in the year they are processed, they should also indicate the year for which the contributions was made (effective tax year 2001). The problem here is, the IRA instructions provide for recharacterizations to be reported for contributions/conversions made in the current or previous year. There are no provisions to report contributions/conversions done earlier than the previous year.

See “What's New for 2001?” in the attached instructions http://www.irs.gov/pub/irs-pdf/i1099r01.pdf

[Guest reg_h2b]

Appleby-

We just talked again to our IRS contact who wrote the ruling. Here are the answers to the above questions:

Answer #1:

The 1099-R and the 5498 should have been coded as "1999" not "2001". The PLR has the effect of making the recharacterization effective "as if" it was done by the 12/31/99 deadline (despite what the PLR language about the 6 month extention may seem to imply).

Answer #2:

The 30 day period is only relevant for a given IRA owner. In our case, we had two owners: we had decedent owner recharacterize and a spouse convert HER IRA to a Roth. Thus the 30 day period is not relevant. (Of course, it wasn't relevant anyway because the effective date of the recharacterization is 12/31/99 not 12/2001).

Our custodian is still very much confused and I don't know if it is worth the fight to get them to re-issue a "1999" 1099-R. I'm going to attach the ruling along with an explanation from the ruler to the amended 1998 and the 2001 returns along with the incorrect "2001" 1099-Rs. Seem reasonable?

Reg

[Appleby]

Seems reasonable.

I can see the custodian’s point of view. The IRS’ stance is that no one should rely on any information they provide, unless it is in writing.

Unless you are able to obtain the information – regarding the 1999 reporting- in writing from the IRS, the custodian can only rely on what was already issued in writing.

[Guest reg_h2b]

A-

That's just it. The IRS says their interpretation is clear from Reg. Section 301.9100-1 which is in the written ruling and the basis for all the postive "Roth deadline" rulings.

The custodian- to say the least- does not have that kind of technical grasp of this reg.

Reg