April 5, 2011
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IRS Ends Pilot or Trial Truncation Program Effective for 2011 Forms.
The 2011 Form 1099-R is required to be completed to show the
recipient’s complete identifying number (SSN) on all copies of the
forms
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Box 7 has two boxes. In the first box, the IRA custodian will insert
the reason code describing the distribution. The second box is to be
checked if the distribution is from a traditional, SEP, or SIMPLE IRA.
After receiving a suggestion from CWF, the IRS changed the last sentence to read, “Do not check the box for a distribution from a Roth IRA or for an IRA recharacterization.” Before it read, “it is not necessary to check the box for a distribution from a Roth IRA or for an IRA recharacterization.” The fact is – if this box was checked for a Roth IRA distribution, the IRS still sent a tax assessment letter asking why the recipient had not included Roth IRA distribution amount “as taxable”on their tax return.
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The IRS has chosen to increase the discussion of prohibited
transactions. This is an indication that the IRS expects IRA
custodians to report prohibited transactions when they happen on
account of the accountholder or the inheriting beneficiary. The new
paragraph on page 2 reads, “Prohibited transactions. If an IRA tion
with respect to an IRA, the assets of the IRA are treated as
distributed on the first day of the tax year in which the prohibited
transaction occurs. lRAs that include, or consist of, non-marketable
securities and/or closely held investments, in which the IRA owner
effectively controls the underlying assets of such securities or
investments, have a greater potential for resulting in a prohibited
transaction. Report the distribution as you normally would for the IRA
that has engaged in the prohibited transaction. Enter Code 5 in box 7.
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With the extension of Qualified Charitable Distributions for 2010 and
2011, the 2011 1099-R instructions again state the reporting rule that
there is no special reporting by the IRA custodian for qualified
charitable distributions or for qualified HSA funding distributions.
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A new paragraph has been added discussing special distributions
arising from distributions under the Employee Plans Compliance
Resolution System(EPCRS). In some situations. the IRS has ruled that
it will be permissible for an IRA custodian to return certain excess
employer contributions (but not elective deferrals), and the earnings
on them, under SEP, SAR-SEP or SIMPLE-IRA plans to the employer. In
such case, the gross distribution is to be entered in box 1, 0 in box
2a and enter Code E in box 7.
- Added a new paragraph for payments to covered expatriates (i.e. individuals who have given up U.S. citizenship). The IRA custodian is to follow the guidance provided by Notice 2009-85.
If you have any questions please call us at 800.346.3961.
Categories: Governmental Reporting