Reportable Distribution error...

[Guest Carl C]

On May 3 '02 my sister in law asked for an early distribution from her Rollover IRA in the amount of $27K. Fidelity wrote two checks, one for $27K to her, the other for $3K to the IRS, both of which are described as "Early dist no excep" on her monthly statement. She never got her check, so on May 31 Fidelity voided both checks. Fidelity still reported the "transaction" on her statement as a "Reportable Distribution" of $30K, even though she never got the money. (Unfortunately, she never read her statement at that time).

Since she never got the money she needed, in June she asked for the $27K again to be sent to her (I believe she wanted it wired this time). On June 21 '02 $27,634.58 was wired to her and listed as "Early dist no except", and $3,070.51 was listed as "Create Withholding" on her statement. Once again, the funds never went through to her checking account. Three days later on June 24 '02 it looks like a wire transfer from her bank (not her checking account though) in the amount of $27,634.58 went back to Fidelity. On June 25 '02 Fidelity tried it again, and was successful in getting the $27,634.58 to her checking account. The problem is, Fidelity showed both of the $27K June transactions as "Reportable Distributions", and added to the May $30K, her total reportable distributions were $85,339.67, when her account was never worth more than $55K.

Fidelity sent the IRS a 1099 showing $85,339.67 in reportable distributions. She only received $27,634.58 (plus the $3,070.51 in withholding I guess). Is this something Fidelity can work out? If not, what does she do?

Carl

[Mary Kay Foss]

Forms 1099 are supposed to be sent to the payees by 1/31 and the IRS by 2/28 to find and correct errors. The Form 1099 is supposed to have a telephone number that you can call to straighten out the problem.

Your relative should get right on it because I imagine it takes a long time for an outfit as large as Fidelity to admit, find and correct an error.

Good luck!

[Mike Preston]

Assuming Fidelity won't make the change for you, for one reason or another, make sure you document precisely what really happened (your relative never got more than 30k, between the transfer to her checking and the withholding). Then see if her accountant would be willing to report the transaction as including a rollover back to Fideility. While having Fidelity correct the error has to be the "best" course of action, I know quite a few accountants that wouldn't have much of a problem making sure your relative only paid taxes (including excise taxes) on the real distribution that she received.

[jane123]

You should have Fidelity correct the error- they are obligated to

If your account reports the first distribution as a rollover, it will come up as a discrepancy on the IRSs record.

Of course, you could file form 8275 http://www.irs.gov/pub/irs-pdf/i8275r.pdf http://www.irs.gov/pub/irs-pdf/i8275.pdf with your return or attach a letter of explanation to the IRS- but Fidelity doing then right thing removes any burden of proof from you