Timing of 1099-Rs to Participants

[Guest CMS]

We returned contributions to HCEs on 3/15/99 (failed ADP test). We've received conflicting advice on timing of 1090-Rs to participants.

1. Must the 1099-Rs be sent to participants in Jan. 2000? Permissible to send earlier?

2. Must participants wait until 2000 to amend their 1998 returns?

3. Why does the IRS require refunds to participants by 3/15 to avoid the excise tax to employers if 1099-Rs don't go to participants until end of year?

[david shipp]

See Notice 88-33 (the three notices that still govern are 87-77, 88-33 and 89-32)

88-33 states that 1099-Rs need not be furnished until the regular deadline for reporting, but that participants must be advised in writing, at the time of the distribution, of the year in which the income is taxable and that receipt of income taxable in a prior year will require an amended return if the return has already been filed.

[Alan Simpson]

Although I am not a CPA, my understanding of this is as follws:

The 1099-R should be prepared and mailed during January 2000. The participant receiving the "refund" should include the "refund" on their 1998 tax return, even though there is no documentation to support it. When the IRS receives the 1099-R (in the year 2000) it should be coded to indicate that it is for the prior year (1998) and the IRS will supposedly recognize it as applicable to the 1998 tax return for the participant.

I do not believe that it is appropriate to send the 1099-R prior to January 2000, but have no documentation to back that up.

As far as why the IRS requires "refunds" prior to March 15 even though the "refund" is not reported until almost 1 year later is anyones guess. However, by requiring the information to be reported for the prior year, the IRS is able to collect taxes on that money sooner.

[Fredman]

Assuming this is a 12/31 year end...

1. These distributions should be reported on a 1999 1099-R which needs to be mailed no later than January 31, 2000. They should be coded with a distribution code of 'P' which designates that the distribution is taxable in the prior year (1999 tax form + taxable in prior year = taxable in 1998). Personally, in my limited experience, I haven't seen 1099-Rs mailed earlier than January. Has anyone else?

2. Participants don't have to wait until the year 2000 to correctly file their 1998 tax return. Its my opinion to give the HCEs the information they need to file their 1998 tax return as early as possible. Whether they choose to use it will be up to them. See some other opinions about this in the discussion thread titled "Failed ADP". Its about 14 messages below this one.

3. There's no relation between the 3/15 deadline and the 1099's being mailed in January. I'll leave it to others to explain why the 3/15 deadline.

[Disco Stu]

One of the trust companies that our firm works with mails a 1099 along with every distribution check. I know that other companies do this as well. Doesn't seem like a great idea to me, but what do I know? Insurance companies have all the answers.

[MWeddell]

I've also seen a situation (very large employer with high-turnover workforce who change addresses frequently) where the 1099R's were mailed with the distribution checks rather than the January after the distributions were made.