1099R forms not filed

[Guest nlmc18]

A participant was paid a $100,000 distribution in 2002 without any federal tax withholding. Our client did not report the distribution to us so a 1099 was never issued, nor did the participant report it on his 1040. How do we go about correcting the error? Do we issue a 2002 1099 now?

In another situation, a participant terminated with an outstanding loan balance and the defaulted loan was never reported on a 1099R or by the participant on his 1040. The default occurred in 2001. What can we do now to correct this situation?

[Guest b2kates]

It seems to me that the plan administrator must issue form 1099. while it is late and likely subject to a late penalty. Without the 1099, how does the 5500 reconcile showing the distribution. Further, if the plan has knowledge that the recipient did not report the distribution, it is arguable that the plan is party to tax fraud.

[david rigby]

Be careful. First confirm where the $ was from? That is, are you sure it was from a qualified plan? If so, see above advice about correct 1099 and correct 5500.

And make sure the plan's ERISA attorney is included.

[mbozek]

How do you know that it was not reported on the participant's 1040? Is it possible that the participant rolled the distribution over to an IRA and reported the distribution as a tax free rollover?

[Guest nlmc18]

In preparing the trust reconciliation, we discovered the distribution and contacted the Plan Trustee who said he had taken a 59 1/2 distribution. We asked him if a 2002 1099R form had been prepared, or if he had reported the distribution on his 1040, he responded no to both questions.

[david rigby]

Hmmm. So the "plan trustee" is also the recipient of the distribution? Sounds as if someone gave some advice. Might be useful to determine who that was, such as independent (he said with a smile) accountant. If so, get that person to explain.