IRS Tax Assessment Because No Rollover Reported

[austin3515]

This is ridiculous and almost suggests that the IRS doesn't understand their own rules.

This has happened to us 3 times in the last 4 or 5 months. Client rolled money from an IRA into a 401k plan.  IRA sends out a 1099-R with a Code G.  The IRS sends my client a letter that he owes $X Thousand in taxes (which of course the client freaks out about) claiming that they received no corresponding 5498 confirming the rollover.  But of course 401k plans don;t send 5498s when they receive rollovers.  Can anyone else see the flaw in the system?

Has anyone brought this to their attention?  We literally have a template letter that we use now to respond.  That's ridiculous.

[Appleby]

Hi Austin,

1. Was it reported on the client's tax return as a nontaxable direct rollover?
2. Does Box 2a of the 1099-R show zero?
3. Was a note included with the tax return explaining the rollover?

If yes to all of those, then there should be no issue. If no to any one of those, that could be the issue.

 

 

 

[ESOP Guy]

55 minutes ago, Appleby said:

Hi Austin,

1. Was it reported on the client's tax return as a nontaxable direct rollover?
2. Does Box 2a of the 1099-R show zero?
3. Was a note included with the tax return explaining the rollover?

If yes to all of those, then there should be no issue. If no to any one of those, that could be the issue.

 

 

 

I have to admit my initial reaction to #3 above was are you required to attache a note? 

The answer is "yes".

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Page 25 I quote:

If you rolled over the distribution into

a qualified plan other than an IRA or

you made the rollover in 2018, include a

statement explaining what you did

 

I am willing to bet the note was missing and when the computer pulls the return when a human doesn't find the note they send the letter. 

[Appleby]

3 minutes ago, ESOP Guy said:

I have to admit my initial reaction to #3 above was are you required to attache a note? 

The answer is "yes".

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Page 25 I quote:

If you rolled over the distribution into

a qualified plan other than an IRA or

you made the rollover in 2018, include a

statement explaining what you did

 

I am willing to bet the note was missing and when the computer pulls the return when a human doesn't find the note they send the letter. 

Placing a dime on that bet , because I agree- ( hope that is not ? )

[austin3515]

Thanks!  This is great information, I never knew how it worked before!

Thanks!

[Alex]

Austin3515, Can you provide me with a copy of the form letter you use to respond to the IRS in these situations that you mentioned in your first comment.  The same situation came up today with one of my clients and this is the first time I have experienced this.  Thanks Alex   

alexdimuropda@yahoo.com

[austin3515]

You know I would be glad to, except that I would not have written it the same way now that I know what I know from the previous posts.  I would have talked to the CPA about the 1040 to see if they prepared it correctly with the indicated notice--if they did(which let's assume most do it correctly) I would certainly like to mention that to the IRS.