Don’t Panic Over Prior-Year Tax Reporting Corrections
The 2023 tax season may be over, but that doesn’t always mean your work for this tax year is finished. Mistakes happen. But you might not find out about them until your client walks into your branch office with a tax form received from your financial organization that contains incorrect reporting information.
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 organization’s responsibility to send a corrected copy of the tax form to the IRS and your client as soon as possible.
So what’s your next step? Some financial organizations’ core systems may not be able to assist with prior-year tax reporting corrections, so these corrections need to be performed manually—by you. All paper corrections are submitted with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. But where do you get the forms? Many forms are not available to download from the IRS. If you don’t have any of the official forms on hand for that tax year, then you’ll need to order them from the IRS, which can take up to 10 business days to receive by mail.
But here’s the frustrating part. If you file paper forms, they must be filed based on the instructions found in the General Instructions for Certain Information Forms. Because the IRS must scan the forms, if these detailed instructions are not followed, your financial organization 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.
Feeling Overwhelmed? We’re Here to Help
Ascensus’ Fully-Administered Program can take the stress and worry out of your prior-year tax reporting corrections for IRAs, HSAs, and Coverdell ESAs. Using our secure online processing system, called IRAdirect®, we can collect the corrected tax reporting information and provide the corrected forms to the IRS and to your account owners and create state copies for state reconciliation as needed. You can also choose to print and mail the corrected forms to your account owners.
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 may assist your financial organization in complete administrative, operational, and compliance support, call 800-356-9140.
