Pub. 11 2021-2022 Issue 3

coloradobankers.org 24 In 2020, we had a client transfer his Traditional IRA from another financial organization to an IRA with our organization. The client completed the appropriate IRA transfer paperwork, and the other organization sent the funds by check payable to our financial organization as custodian for the customer’s IRA. We deposited the funds into the Traditional IRA as a transfer. Our client received a 2020 IRS Form 1099-R showing this as an IRA distribution and the other financial organization is refusing to correct it. Is there anything our client do to avoid paying taxes on the distribution? As you’re aware, an IRA-to-IRA transfer is a nonreportable transaction. If the sending organization (the payer) reports the transaction as a distribution on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., the IRS will think that a distribution occurred and that it will be includible in the IRA owner’s taxable income. Thus, it’s important that the Form 1099-R be corrected. The IRA owner should contact the sending organization and provide copies of the transfer paperwork to show that the transaction was requested and completed as an IRA-to-IRA transfer, and ask the sending organization to issue a corrected Form 1099-R. He should also retain documentation of how and when he contacted the sending organization with his request. If the sending organization refuses to correct the Form 1099-R, he can then go to the IRS. The IRS provides Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to be used by tax preparers as a substitute for Forms W-2, W-2C, and 1099-R. According to the instructions, IRA owners who do not receive corrected forms from payers by the end of February of the year the Form 1099-R is received may call the IRS at 800-829-1040 for assistance. The IRS will contact the payer to request the corrected Form 1099-R and also issue a Form 4852 to the IRA owner. If the IRA owner does not receive the corrected form in sufficient time to file his tax return timely, he may complete Form 4852 as directed in the instructions and attach it to his tax return. IRS Form 4852 requires that the IRA owner complete the questions in Line 8, Form 1099-R, as they should have been on a correct Form 1099-R (e.g., for a transfer, enter $0 as the gross distribution). Specific details are found in the instructions. Transfers Are Nonreportable; No Such Thing as Prior-Year Conversion; 12-Month Limit Only for IRA-to-IRA Rollovers By Carrie Horn, QPA, TGPC, CISP, CHSP