Which reporting form?

[Guest Paul McDonald]

Received a 1099-R yesterday for what is reflected as a distribution code G (Direct rollover to IRA). What we did was change trustees (custodian) of my deceased father-in-law's IRA of which my wife is one of the beneficiaries. The money was in a fixed annuity and we requested the transfer to improve her opportunities for growth as the required distribution period is over 23 years. My father-in-law passed away at age 79 and was taking RMD's. We recognize that we must continue to take RMD's, etc.

The IRA that the money was transferred was registered in the name of the deceased and has his tax ID number on the account. My wife is beneficiary, etc.

I believe that the 1099-R that was issued is incorrect and the IRS will audit our tax return this year looking for us to report the entire amount as taxable income as a non-spouse beneficiary is not allowed to "roll-over" an inherited IRA.

The Annuity Carrier claims that the IRS has instructed them to use form 1099-R using the G (rollover) code when a trustee to trustee transfer is made, and that the receiving entity will report receipt on Form 5498 to cancel out the taxation impact.

It doesn't sound correct to me as the 1099 reports distributions and this was not a distribution. The form 1099R instructions also state that the form is generally not to be used for transfers (Page 32 of the instructions to Form 1099, etc.)

Anyone out there know who or what is the correct way to report this trustee to trustee (custodian to custodian) transfer of the IRA interest?

[Michael Devault]

I think you've been given bad information. The instructions for completing 1099-R specifically state: "Do not use this code [G] for a distribution from an IRA." The instructions further state (on page 32) that "Generally, do not report transfers between trustees that involve no payment or distribution of funds to the participant..."

You can get a copy of the instructions from the IRS' web site. I suggest you send the company a copy and ask them to send a corrected 1099-R

Hope this helps. Good luck!

[BPickerCPA]

As an aside, your wife's social security number should now be on the account, not the decedent's.

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Barry Picker, CPA/PFS, CFP

New York, NY

[John Olsen]

Barry,

Could you review the circumstances in which the DECEDENT'S SSN should be on an account for the beneficiaries and when the BENEFICIARY'S SSN should be used.

Clearly, there is much confusion on this point.

John Olsen

[Guest Paul McDonald]

I have found the same regarding the 1099. I do not believe this is the proper reporting form for a trustee/custodian to trustee/custodian transfer. Is any Form required? The 5498 is used to report the receipt of contributions, yet this is not a contribution--merely a transfer. Does the IRS really track when IRA funds go from one place to another?

On the TIN issue, the receiving account was establish in the name of the decedant FBO the beneficiary. Both TINs are on the account. The private letter rulings indicated that a key issue was that the account would still have to be in the NAME of the decedant. When you think about it, the beneficiary is not really the owner of the IRA--just a beneficiary.

Guess I'm still stuck on the issue of whether or not a trustee to trustee transfer is even reported to the IRS.

Thanks for all the information.

[BPickerCPA]

John,

Once the decedent becomes the decedent, then he/she is no longer the owner of the IRA and cannot get taxable distributions. Therefore the beneficiary, who is now actually the owner, needs to have his/her SSN on the account since any distributions will be taxable to him/her.

Barry

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Barry Picker, CPA/PFS, CFP

New York, NY

[BPickerCPA]

[[Guess I'm still stuck on the issue of whether or not a trustee to trustee transfer is even reported to the IRS.]]

I had a similar type of discussion concerning 1099s the other day. Basically, there are rules when 1099s have to be filed. However they can be filed even if they are not required. For example, you need to file a 1099 for miscellaneous income over $600. However you don't violate any law if you file them for income under the threshhold.

So even if it is not required to have a trustee to trustee transfer reported to the IRS, some custodians will still do it.

No big deal.

Barry

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Barry Picker, CPA/PFS, CFP

New York, NY