Which Tax Year for 1099-R reporting

[Guest Dee401kLady]

What is used to determine the tax year for reporting a distribution - is it the distribution check date or the settlement date for the request? Trying to confirm what is correct for end of year distribution requests. For example, if a distribution is requested (on plan website) on December 30, 2013and the trades settle on December 31, 2013 and the check is issued and dated January 2, 2014, should the 1099-R be a 2013 form, or a 2014 form?

What is the key date - settlement or check? I know that constructive receipt is noted in ERISA Online, but references do not specifcally note for tax reporting purposes(for 1099-R reporting).

[ESOP Guy]

If the check isn't issued until 2014 I don't see how constructive receipt happens until 2014. The rule of constructive receipt is the person being paid had to have the ability to control the money. If the check doesn't exist in 2013 i don't see how anyone can make the claim they had control of the money.

[masteff]

The trade settlement is a red herring as the funds are still owned and controlled by the Plan. See ESOP Guy's comments re: constructive receipt.

You could make the fact pattern much more interesting if you cut and mailed the check on Dec 31st. Some of the income tax and investment forums have massive arguments about how that one plays out. (Of course, part of the answer is how do you want it to play out... if you were needing to take a minimum distribution then you're not going to argue that it's January income.)

[Guest Dee401kLady]

Thanks

Agreed, the settlement date is the component that creates the most concern. When the investments are liquidated, are they really still plan assets before the check is issued? Masteff do you have a reference for this? I struggle with this since for tax reporting I would say yes, they are. However, for 5500 reporting I think it depends on the accounting method. For cash accounting: no, the liquidated amount is not included in plan assets. For accrual accounting, I would report liqidated amount as a payable.

I see the RMD 'humor' as it relates to 'which year is it'. However, the distribution is completed when the check is dated- so 1099-r is 2013, agreed?

Another twist - if the distribution involves several investments, where some of the investments settle on December 30, others on December 31 and yet other investments on January 1, is the tax reporting the latest date of settlement? And, for 5500 reporting, again, based on cash accounting, it is reported in total as distributed, but for accrual is it all or partially reported?

[GMK]

Forget settled. Until the check is issued, the funds are in the plan.

[ESOP Guy]

Forget settled. Until the check is issued, the funds are in the plan.

And as far as I am concerned until the checks are issued the money is on the 5500.

[david rigby]

Don't overthink it. Almost always, the date of the check will indicate the year of 1099.

[masteff]

Constructive receipt is well established in numerous reference materials, such as the following IRS Informational Letter.

http://www.irs.gov/pub/irs-wd/06-0005.pdf (which was new to me but generally reaffirmed my understanding of constructive receipt)

On the 2nd page, first paragraph, the last sentence seems to be modernizing the "mailbox" concept... a "direct deposit" rule, if you please.

Regardless of whether the proceeds of the trade settlement were technically in an account owned directly by the plan or in an account owned by a trustee/custodian/service provider of the plan, it was not held somewhere that the participant could have excercised any form of control over them. It's only when a check or other form of disbursement was made that the funds were received by the participant.