NQDC Distributions Reported by TPA via 1099-R and Employer

[CSS]

I'm dealing with an issue that has occurred over the past nine years. The TPA of our NQDC plan, a bank, issued 1099-Rs to report distributions made to our ex company President (not an owner). Last year it was realized that the company should have been issuing W2s to the ex employee once his distributions began back in 2011. We worked with our tax accountant to rectify the situation for the previous three years. We submitted W2s and paid FICA taxes on the distributions but did not report federal income withholding taxes. The problem is that the ex employee has received a letter from the IRS stating that he underreported income. The reason is because his total distribution was reported twice - a W2 from the employer and a 1099-R from the bank (TPA). I'm trying to convince the bank to void the 1099-R. Their argument is that they withheld income taxes and it needs to be reported. Has anyone dealt with this issue? Can anyone provide a good argument to provide to the bank?

[MoJo]

Good luck getting the 1099 rectified.  Our experience is that 1) it's impossible, and 2) even if you can do it, there are penalties due to the IRS for the "correction."  As far as the recipient, while painful, the only approach is to have a discussion with the IRS about the double reporting, having the former employer and perhaps the bank provide documentation that the income was received once, but reported twice.

[Bob the Swimmer]

Many vendors really screw up the NQDC reporting---I was with one of the largest national HR consulting firms and found out that they were overwithholding on my NQDC for a couple of years by having a local tax jurisdiction which had nothing to do with my work location, take a piece to the tune of a few hundred dollars over 10 years---my point is it's not uncommon because it's different from 401(a) plan withholding. ToMoJo's point, it can be like herding cats to effect any changes.