Take the Stress Out of Prior-Year Tax Reporting
By Jodie Norquist, CIP, CHSP
Although the 2021 tax season is behind us, your work for this tax year may not be done. Inevitably, you will end up with an IRA client walking into your branch carrying his 2021 Form 5498, IRA Contribution Information, to point out an error. Better yet, the error may have occurred on a tax form filed with the IRS—and a copy sent to your client—two or three years ago. The Instructions for Forms 1099-R and 5498 state that financial organizations should correct forms “as soon as possible” after an error is discovered. IRS Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G, states that filers generally should submit corrections for returns filed within the last three calendar years. It is your responsibility to file a correction with the IRS as soon as you can and send a corrected copy of the tax form to your client.
So, what do you do? Some financial organizations’ core systems may not assist with prior-year tax reporting corrections, so you might need to perform the correction manually. Some corrections can be accomplished with a single form. For others you will have to recreate the original tax form—using an original IRS form for that tax year—along with a corrected tax form. All corrections are submitted with a Form 1096, Annual Summary and Transmittal of U.S. Information Returns. But the problem is, where do you get the forms? Many forms are not available to download from the IRS. If you don’t have the official forms on hand for that tax year, you’ll need to order them from the IRS, which can take up to 10 business days to receive by mail.
Filing IRA Reporting Corrections Can Be Tricky
But here’s the part that can sometimes be frustrating, especially if you need to file paper forms. Because paper tax forms are scanned by the IRS, all Forms 1096 and Copy A of Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and Forms 5498 used for IRA tax reporting must be filled out correctly based on the instructions found in the General Instructions for Certain Information Forms. If these detailed instructions are not followed, you may be subject to a penalty for each incorrectly filed document. At Ascensus, we receive many calls on our consulting service and administration support lines from financial organizations struggling to fill out these corrected tax forms.
Some of these paper reporting requirements include the following.
Do not cut or separate Copies A of the forms that are printed two or three to a sheet. (Even if only one copy of Form 1099-R is completed, for example, you still need to send the entire page.)
Do not staple the forms to Form 1096.
Use only black ink typed in 12-point Courier font or, if written by hand, use block print, not script, in black ink.
Make all dollar entries without the dollar signs.
Feeling a little stressed? Don’t worry, we’ve got you covered.
Let Ascensus Help You File Your Prior-Year Tax Forms
Ascensus’s Fully-Administered Program can take the stress out of your prior-year tax reporting corrections for IRAs, HSAs, and Coverdell ESAs. Using our secure online processing system, called IRAdirect®, we collect your account owners’ corrected tax reporting information and, in no time at all, you can print and mail the corrected forms to your account owners. Ascensus generally submits all corrections to the IRS on a monthly basis. As applicable, state copies for state reconciliation are created as well.
Even if you’re unsure of how to create a corrected form, our system’s compliance logic handles every step. You won’t have to question how many forms you should be submitting or worry if the ink in your ballpoint pen is IRS-approved. Ascensus can recreate prior-year tax forms even if we didn’t produce the originals. It’s a relatively pain-free process that will save you time and money.
To learn more about how Ascensus’s Fully-Administered Program may assist your financial organization in complete administrative, operational, and compliance support, call 800-356-9140.
