Corrected 1099-R

[austin3515]

Example. Client took a taxable distribution in 2015 from a brokerage account which we did not know about until recently. What is our responsibility to provide a 2015 1099-R? Assume they have already filed their taxes and assume the amount is "significant." And assume we prepare their 5500.

Does the answer change if the participant took 2 taxable distributions, and we reported one but not the other (and therefore a corrected 1099-R would be required). I think it is perhaps different if we learn that the form we actually filed is not accurate).

Obviously the practical answer is simple: Do the corrected 1099 and do the amended 1040. That is NOT my question. My question is directed at understanding what our legal requirements are under the paid preparer rules.

[mphs77]

My first impression is, "what does your service agreement say"?

It may be that you are contracted to prepare the 5500 forms but not the 1099-Rs.

[Lou S.]

I believe it is the Plan Administrator's legal requirement to file the corrected 1099-R.

That said, if you are the paid prepare and it was your fault the incorrect 1099-R was issued I would think best practices would be to prepare and file a corrected 1099-R at no charge. If it was not you fault (you relied on faulty information from the Plan Sponsor to prepare the original) then you should be compensated for preparing and filing a corrected 1099-R.

[austin3515]

Our contract is definitely silent on the 1099-R's.

[austin3515]

But would it be enough to say "Plan Admin, you gave us bad data, and as a result the 1099-R I issued is incorrect" and let them deal with it? Or do I have an obligation to correct it? I wouldn't think who is at fault would affect my obligations; I presume it only matters that we know an error occurred.

[Bill Presson]

Assuming you did what you were supposed to and they gave you bad data, what is your reluctance to prepare a new 1099-R or a corrected one and bill for the work?

[My 2 cents]

Isn't preparation and filing of 1099-R forms the responsibility of whichever financial organization makes the benefit payments (as opposed to such things as preparation of benefit calculations or election materials, which can be contracted out to others)? If the plan has a main trust fund and there are also one or more brokerage accounts, if anything is paid from a brokerage account, it is the responsibility of the brokerage to file an appropriate 1099-R, not yours. Did this not happen?

[RatherBeGolfing]

Isn't preparation and filing of 1099-R forms the responsibility of whichever financial organization makes the benefit payments (as opposed to such things as preparation of benefit calculations or election materials, which can be contracted out to others)? If the plan has a main trust fund and there are also one or more brokerage accounts, if anything is paid from a brokerage account, it is the responsibility of the brokerage to file an appropriate 1099-R, not yours. Did this not happen?

The responsibility lies with the Plan Administrator. If you you establish the trust with the financial institution that has the brokerage window I'm sure they would do a 1099 for you though. But for an unrelated plan and trust (the only connection to the financial institution being the brokerage window), I don't think they are under any obligation to prepare/file a 1099.

I have a lot of brokerage window plans and I can probably count on one hand the times a financial institution prepared Form 1099's for the plan. I should add that all my plans use my plan document which includes the plan trust.

[david rigby]

Question as asked: if you prepare the 1099 and are now told of a correction, issue the correction. You are entitled to be paid for this effort.

Our contract is definitely silent on the 1099-R's.

The service agreement is another matter. Prospectively, you may need some clarity.

- Why did you prepare 1099s if your contract is silent?

- What does it take to get your contract amended to clearly spell out this responsibility and associated fee?

- Can you get someone else to do it in the future?

[Bird]

Obviously the practical answer is simple: Do the corrected 1099 and do the amended 1040. That is NOT my question. My question is directed at understanding what our legal requirements are under the paid preparer rules.

I'm not qualified to give an answer but if you are an ERPA then I think you have some obligation to prepare the 1099. You can't force them to file. I think ASPPA ethics would say the same thing.

Having said that, there are times when I've said something along the lines of "You are the Plan Administrator and I am just here to assist you in performing your duties. This is what you should do. Now you tell me exactly what to do or not do and oh by the way sign this statement telling me what to do or not do."

(Just thought I'd take a stab at actually answering your question . Although I am prone to answer questions that haven't been asked like everyone else.)

[austin3515]

I'm not qualified to give an answer but if you are an ERPA then I think you have some obligation to prepare the 1099. You can't force them to file. I think ASPPA ethics would say the same thing.

That's quite brilliant actually. I think what it comes down to is at that end of the day I am a THIRD PARTY. If a client doesn;t want to file the 1099 I prepare, then that is on them. I have fulfilled my responsibility. It seems inappropriate for me to do something without my client's express permission because I serve at their direction.

Thoughts?

[RatherBeGolfing]

Correct me if I am wrong, but part a) of the original question involved a distribution that the service provider was unaware of and NO 1099 was prepared. The question at hand is whether the service provider is obligated to prepare a Form 1099.

Part b) of the question then asks if the answer is different if there were two distributions (one for which a 1099 was prepared) and a corrected 1099-R is now needed.

Their service agreement is silent on 1099's

Under part a) are you obligated to prepare 1099's for client simply because you are the service provider that prepared the 5500? I don't think so. I think most of us DO provide that service but I know some who do not.

Under part b) they prepared a 1099 but with the wrong amount since they did not know of the second distribution. In this case, since they prepared the original 1099, I think an argument can be made that they did accept the obligation and should probably prepare the corrected 1099.

As far as being a practitioner under circular 230 or a member of ASPPA, I don't see a reason why a practitioner would be obligated to perform a service they did not contract for

As stated in the original question

Obviously the practical answer is simple: Do the corrected 1099 and do the amended 1040. That is NOT my question. My question is directed at understanding what our legal requirements are under the paid preparer rules.

[RatherBeGolfing]

I'm not qualified to give an answer but if you are an ERPA then I think you have some obligation to prepare the 1099. You can't force them to file. I think ASPPA ethics would say the same thing.

That's quite brilliant actually. I think what it comes down to is at that end of the day I am a THIRD PARTY. If a client doesn;t want to file the 1099 I prepare, then that is on them. I have fulfilled my responsibility. It seems inappropriate for me to do something without my client's express permission because I serve at their direction.

Thoughts?

Well that puts it in a different light. I assumed you were talking about the obligation to the client, not the government.

You are correct, you are a third party/paid preparer, you do not have an obligation to file a correction with the IRS (the client does...)

You DO have an obligation under Circular 230 to tell the client that they may be violating the law by not reporting the now apparent distribution, and to explain the consequences

§ 10.21 Knowledge of client’s omission. A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission.

Under ASPPAs code of ethics, it is proabably at least questionable to continue to provide services for a client who is refusing to report income from the plan... In this case I don't think it matters whether your service agreement references 1099's, since you know of the clients omission.

[austin3515]

Here is what I like about Bird's suggestion. Let's presume I am required to do the 1099, because as a risk averse person that is what I would like to assume. If I prepare the correct 1099 then no one can suggest I was complicit in any bad decisions made by a taxpayer. If I prepare the 1099 correctly as a THIRD PARTY and the Plan Administrator decides not to (or forgets) to file the 1099-R, that person bears the responsibility of their own decisions. I have complied with any reasonable obligation that someone might think befalls me.

I am not legally obligated to file tax forms on behalf of a client. I am merely preparing a tax form for which it is their responsibility to file, even though I might for some other clients file that form electronically.

Again, I am trying to figure out the minimum threshold for me comply with the paid preparer rules. It seems to me I cannot be penalized for preparing an accurate form for the client to file if the client is the one who chooses not to file.

[austin3515]

You DO have an obligation under Circular 230 to tell the client that they may be violating the law by not reporting the now apparent distribution, and to explain the consequences

By sending the client the corrected 1099-R that is precisely what I am doing. I do not have to advise them of the consequences of not doing what I ask. I presume they will do what I instruct. "Dear client - the 1099 was inaccurate or no 1099 was filed. Please file the attached [corrected] 1099-R and prepare your amended tax returns accordingly oh and by the way enjoy the rest of your summer!"

I've met Circular 230, have I not? In the example I gave I have zero obligation to find out if they complied with my instructions.

[RatherBeGolfing]

You DO have an obligation under Circular 230 to tell the client that they may be violating the law by not reporting the now apparent distribution, and to explain the consequences

By sending the client the corrected 1099-R that is precisely what I am doing. I do not have to advise them of the consequences of not doing what I ask. I presume they will do what I instruct. "Dear client - the 1099 was inaccurate or no 1099 was filed. Please file the attached [corrected] 1099-R and prepare your amended tax returns accordingly oh and by the way enjoy the rest of your summer!"

I've met Circular 230, have I not? In the example I gave I have zero obligation to find out if they complied with my instructions.

Yes, I think you have met your obligation under 230 10:21 when it comes to the 1099.

The bigger question is the 5500, since you under-reported distributions. I think you need to amend and file the 5500 (or have the client do it) to reflect the correct distribution. I'm not sure how much cross checking they do between the 1096 and 5500, but I have seen it come up in audits before.

[Bill Presson]

I think you've indirectly answered my question. You don't have a reluctance to prepare a new 1099 or a revised 1099. You're client is saying "forget it, I'm just going to ignore it and take my chances."

[austin3515]

In this situation, it was a conversation we were having as I was advising regarding the implications. Thankfully they saw things clearly and are doing the right thing. But I now feel a lot better about what my own responsibilities are in these situations. Thanks everyone!