IRAs: Reporting Oddities

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By Debbie Shipman, CIS, CIP, CISP, CHSP

An IRA owner wants to complete a rollover through the new self-certification process. How do we report this transaction?

The reporting of a self-certified rollover is different than the reporting of a standard rollover. The 2017 Instructions for Forms 1099-R and 5498 indicate your financial organization must report self-certified rollover contributions on Form 5498, IRA Contribution Information, in Box 13a, Postponed contribution, and code SC in Box 13c.

The IRS released Revenue Procedure 2016-47 in August 2016 which details how IRA owners self-certify that they qualify for relief from the 60-day rollover rule. The acceptable reasons are listed in Section 3.02(2) of the revenue procedure. The IRA owner must complete and sign the letter in the Appendix of Revenue Procedure 2016-47 (or a qualifying substitute form) to self-certify the late rollover, and your financial organization should keep a copy in the IRA owner’s file.

When reviewing our IRS Form 1099-R reports, we discovered we reported a distribution of $1,200 and it should have been $1,250. Must we file a corrected Form 1099-R showing the $1,250 amount?

No, you generally do not have to file a Form 1099-R in this situation. In 2017, the IRS released Notice 2017-09 that provides guidance on the safe harbor exemption from reporting penalties for de minimis reporting errors. This safe harbor provision applies to Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc., and Form 1042-S, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

If the aggregate dollar amount that you reported is incorrect and the error does not exceed $100, you are not required to correct the error. There is a similar provision regarding tax withholding, although the error limitation for tax withholding is $25. But if the recipient requests a corrected statement in either situation, you are required to provide it.

While you are not required to make such correction and will not be penalized for not doing so, many financial organizations will choose to file corrected statements as a service to their clients. Additionally, you cannot rely on the safe harbor for de minimis errors if

  • the error was intentional,

  • a Form 1099-R or Form 1042-S was not filed at all, or

  • the error exceeded the $100/$25 thresholds.

A beneficiary of a Traditional IRA would like to have her required distribution withdrawn as a qualified charitable distribution. Is that allowed for beneficiaries, and if so, how do we report it?

IRA beneficiaries who are age 70½ or older are allowed to have their beneficiary required minimum distribution (RMD) treated as a qualified charitable distribution (QCD). The 2017 Instructions for Forms 1099-R and 5498 indicate that there is no special reporting for QCDs. Therefore, financial organizations would report the distribution as a beneficiary distribution using code 4, Death, in Box 7 of Form 1099-R.

A QCD generally is a nontaxable distribution from an IRA, other than from an ongoing simplified employee pension (SEP) or savings incentive match plan for employees (SIMPLE) IRA, that is paid directly to an eligible charity. A plan is ongoing if an employer contribution is made for the plan year ending with or within the IRA owner's taxable year for which the QCD tax treatment is sought. The maximum amount of a QCD is $100,000 annually per taxpayer, limited to the amount of the distribution that would otherwise be included as income. 

Your financial organization should receive written request from the IRA beneficiary that the distribution is to be sent a qualified charity. Ascensus offers the IRA Charitable Distribution Request (Form #22) for financial organizations.