Need 1099 Help

[Guest Boilerburm1]

Participant has $60,000 account balance consisting of $50,000 in investments and $10,000 outstanding plan loan balance. Participant dies and daughter takes a distribution of the $50,000 cash. The loan is offset upon distribution.

The beneficiary has received a 1099 for the $50,000 she received, but what should happen regarding the $10,000? Should the 1099 be issued in the name of the beneficiary? Or should the 1099 be issued in the name of the participant? What code would be correct?

Thanks for any help.

[saabraa]

I vote for another 1099-R for the beneficiary for $10,000. The $10,000 loan outstanding remains a plan asset/investment that could be rolled over within 60 days of the offset. I'm just asking; did you check instructions for F. 1099-R?

[E as in ERISA]

I don't know the technical answer. But I think I'd want it to go to the participant or their estate. If this person had a lot of money and they have an executor or administrator, I'd like that person to consider that debt in distribution of assets. If there is a house or car or other property that the loan was used to purchase, then I'd like the taxes to be applied against who ever has that property. Or even better, I'd like the loan to be re-paid and the beneficiary of the plan get another $10,000 (and then get the 1099 and taxes on that). But that is probably not the case.

[GBurns]

Why is there an outstanding loan?

I thought that the OP stated that the loan was paid before the $50,000 disbursement. The $50,00 was net balance.

[E as in ERISA]

Loan is offset -- similar to deemed distribution -- but it's after a distributable event -- so it's treated as an actual distribution of the $10,000. But the bene didn't get that $10,000...

[GBurns]

So since the beneficiary did not get the $10,000 that should mean that the beneficiary does not get the 1099, doesn't it? Or is there some sort of constructive receipt type issue involved? I wonder what the Form instructions say.

[Guest Boilerburm1]

The form instructions do not directly address the issue. They address loan offset as follows: "If a participant's accrued benefit is reduced (offset) to repay a loan, the amount of the account balance that is offset against the loan is an actual distribution. Report it as you would any other actual distribution. Do not enter Code L in box 7."

The instructions do not address loans when discussing beneficiaries, hence our uncertainty.

Thanks for the replies. We are leaning towards issuing the 1099 to the deceased participant.

[JanetM]

This came up in CPA firm I used to work for. After long discussions and lots of reading regs and instructions it was decided that 1099 for loan offset goes to deceased participant and 1099 for cash distribution goes to beneficiary.

Logic was, it participant had not died, the loan would have defaulted and a 1099 issued for 10K loan balance. Then he dies and beneficiary get the 50K and the 1099 for that amount.

[Guest Boilerburm1]

Thanks for the replies. In the interim, one of my staff called IRS, and they too agreed with methodology that JanetM put forth.