Tax withholding sent to IRS in error

[Guest Lawrenceg]

An error was made and a rollover distribution was processed as a cashout . The Custodian sent the IRS $12,789 for the 20 % taxes and cut a check to the participant for the remainder.

Participant gets the check and calls about the error and to get the 20% withholding returned for the rollover.. Custodian says that amount aleady sent to the IRS and can not get it back. Participant does not have $12,789 to make up the difference and cannot use the tax credit for the distribution.

What can be done.

[Guest b2kates]

you do not state the timing of the distribution and deposit with the IRS. That is the critical issue on whether the custodian can retrieve and send to participant. If sent prior to year end, then custodian is correct, the only correction permitted is to file for a refund or take credit on individual tax return.

If payment was made since January 1, 2006 then custodian should be able to recapture or offset its future deposit obligation to be able to return the improper withholding to the participant.

Further you did not state if the participant actually cashed the check.

If you would like to discuss in detail, drop me a note, Previously I was the Senior Tax manager responsible for ERISA compliance at a New York Bank trustee.

[Guest Lawrenceg]

If you would like to discuss in detail, drop me a note, Previously I was the Senior Tax manager responsible for ERISA compliance at a New York Bank trustee.

Payment was made December 30th and Custodian sent in the taxes on the 31st. Participant has not cashed the check.

Is this possible?

Custodian files for a refund of the taxes. In the meantime participant's check is voided and funds reinvested until IRS tax refund received. Then correctly rollover the total balance .??

Do you have an idea of the timing on an IRS refund of taxes and what form is used to request it?

[Guest b2kates]

Easiest to explain and discuss offline.

Drop me a note and I will be happy to talk with you

In short, the "refund" is obtained by filing a correct liability amount on form 945.