Failure to Process Withholding Tax

[Below Ground]

Have a new takeover client with a profit sharing plan that uses a trustee directed fund, subject to annual valuation. Of course plan has several problems. One problem is that in 2009 a terminated participant was paid the 80% of the benefit due. The 20% for mandatory withholding was left in the trust. I do not know if any 1099R Form was done. (It appears that client kept almost no records.) We are now in 2012 and those monies remain in the trust fund. Any opinions on what actions should be taken to correct this problem? Thanks!

[Kevin C]

You won't be able to do anything without information on what was done for 2009 and likely later years. For example, it is possible the withholding was paid from an employer account. We've had clients do that.

I would either have the client contact the IRS and ask for a 945 account history or, you can get them to sign a 2848 and you request it for them. The last letter we received from the IRS about a 945 filing had the return address Ogden, UT 84201-0038 and a phone number 1-800-829-0115.

[Below Ground]

Thanks Kevin. I will suggest calling to them. I think that is a great idea! We do know that there was no activity under the trust since the payment to the person.

[mbozek]

Have a new takeover client with a profit sharing plan that uses a trustee directed fund, subject to annual valuation. Of course plan has several problems. One problem is that in 2009 a terminated participant was paid the 80% of the benefit due. The 20% for mandatory withholding was left in the trust. I do not know if any 1099R Form was done. (It appears that client kept almost no records.) We are now in 2012 and those monies remain in the trust fund. Any opinions on what actions should be taken to correct this problem? Thanks!

Client needs to contact IRS to get copy of 1099R and find out what was reported as taxable distribution and witholding. Its possible that only the 80% paid was reported as the distibution. If 100% of account was reported as distributed then trust needs to pay the 20% withheld to participant since taxes were paid and 20% in trust belongs to participant not the plan. If 80% was reported as distributed then the plan needs to issue a revised 1099R with the correct amount of the distribution and amount withheld and send the 20% witholding to the IRS so that the taxpayer will not owe tax on the revised distribution. Of course if the particpant rolled over the 80% no taxes were paid so the participant should be able to rollover the remaining 20%. Plan wil have to contact participant to find out what happend to 80% distribution.

Of course there is the possibility that the plan reported 100% as the taxable distribution, the participant rolled over 80% and paid tax on the remaining 20%. Plan would owe 20% to participant as non taxable distribution. There are other possibilities too numerous to mention including never filing a 1099R.

[Below Ground]

I would guess no 1099 was filed. We shall see. Thanks!