uncashed distribution check - rev rul 2019-19

[Tom Poje]

I guess the process / assumption is as follows

distribution issued, 20% withholding.

so a 1099 exists. so the IRS 'expects' to see the distribution on the tax form, whether or not the person cashes the check or not.

interesting

distribution check not cashed.pdf

[ESOP Guy]

And anyone with just plain old fashion tax training will tell you that the IRS is being consistent here.  This is known as the constructive receipt rule.  The person has receipt of the income so it is reportable income.  

 

On the payroll side of things you can't refuse to cash a paycheck (I know who gets actual checks anymore?) from late December until the following January and move the income to the next year.    You had receipt of the paycheck so you had the income in December.  

The only grey area would be if the check was sent to the wrong address or something like that but this seems to be saying it is still income. 

[CuseFan]

Agree, and I was surprised as many others I'm sure, that they even needed to issue this ruling for clarification. The clarification that was/is still needed, and the question has already been raised, is how is this all treated and reported if the check was not received for whatever reason - person moved w/o forwarding address, is incapacitated in some way (hospital, nursing home, etc.)? And unless you incur the expense of certified return receipt mail (probably a best practice) how can you prove the person received the check?

[RatherBeGolfing]

19 hours ago, CuseFan said:

Agree, and I was surprised as many others I'm sure, that they even needed to issue this ruling for clarification.

I think it is because of a 2018 GAO recommendation that the IRS review taxation issues involving uncashed checks and clarify for the public what the IRC requirements are (See P. 84 of the attachment).

GAO_18-19.pdf

[Tom Poje]

there is now something definite to 'shove' under the participant's nose about the issue.

I guess also to the asset house - the uncashed check, since taxes have been paid, would also have to go into an after tax account. that should be fun.

I suppose for the plan admin/record keeper as well.