BNS

A new client is trustee for a special needs trust that was created in 1989 for his brother who is now 67 years old. Brother lives in a group home in Southern California and receives SSI and MediCal. Prior CPA set this as a complex trust, however in some research if this is a "qualified disablity trust" the exemption is $3500 (same as on 1040) otherwise it would only be $100, which would decrease the tax liability on the 1041. I found reference to a qualified trust for someone under the age of 65. This was set up way before the "disabled" person was 65, so does it matter that he is now over 65, must use the lower exemption of $100. What would happen if the 2008 "1041" was submitted, checking the "qualified disablity trust" vs complex trust ....money is not distributed, other than if there are medical bills that state does not cover. thanks for any input ... Sue

Thank you KC ...I felt the 60 day didn't really apply, except the view that the withholding was indirectly given to them. This may not have been a wise decision either, although I can understand their thinking that they would be prepaying some of their tax liability. They still would have owed lots more even with the withholding. I only wish they had asked me before the conversion what the total tax implication would be, as obviously the financial advisor didn't tell them anything and they really didn't have the cash to come up with the additional taxes that would have been due even if there AGI was less than $100K ...If income ok in other years, or wait until 2010, perhaps smaller increments would be better. The total amounts between the spouses was about $104K. The financial institution is claiming the withholdings are a premature distribution since not rolled back within 60 days. The "ROTH" did get recharacterized back to Traditional IRA account, less the withholdings. Since taxpayer returned the withhoolding money before April 15th, couldn't institution report the full amount as recharacterization on Form 5498 and if necessary request a waiver of 60 day due to total screw-up. They may be looking into this, also not sure if it would be a 2007 or 2008 early distribution. Would say 2007 since it did occur in that year, although discovery was 2008. Taxpayer is actually a young attorney, however his firm deals more with insurance related cases, but I'm sure can find connections to press the issue. He has already said he will insist that firm pay the 10% penalty if that turns out to be the case, then will move his account to somewhere else. Lives in Oregon, it does not appear they have a penalty like California. I will also forward the code sections. thanks again for your input, like I said, a real mess.

Hopefully this will not get too confusing. My clients provided their tax information to me, including 1099Rs that reflected a trustee-to-trustee transfer of previous employer 401K contributions to IRA accounts. Then they converted these IRA's to ROTH IRA"S. The 1099's on the ROTH conversions also reflected federal & state withholding as taxpayers knew they would owe taxes on the converted money and wanted to make sure their taxes were paid. However their financial advisor had quoted them the wrong limitation for ROTH rollover ($156,000 vs $100,000) and taxpayers AGI exceeded the $100K. Pub 590 states a recharacterization can be done and all monies plus earnings can go back to Traditional IRA. Papers were signed, taxpayers got refunds and sent money back to financial institution to make up the difference, etc. all before April 15th. Thought all was fine, except the financial institution said this wasn't done within 60 days rollover and money is just sitting in an account (not IRA) Taxpayer being told may now be subject to a tax & premature distribution penalty (which he plans on collecting from them if this turns out to be true) Would IRS grant a waiver, since all of this wasn't taxpayers fault, although he didn't call me before this was done to verify if correct. Is there actually a 60 day provision, since these transactions were all trustee-to-trustee? Did taxpayer actually receive a distribution due to the withholding? Form 5498 isn't sent until May 31st, couldn't the total amount of characterization be reported and that is what IRS would use for matching? A mess to say the least ...thanks for any input ...

Thank you for the info ...guess it would pay to look over all the input screens before tax season starts ...didn't even think to look on the 1099R, always amazing how the programmers can get find a way to accomodate changes in tax law ...glad I don't have their job !! Happy Easter .. S.J.

Have a client who is beneficiary of her son's IRA. Rec'd 1099R, Box 1 (gross) & 2a (taxable) are same amounts. Both 2b areas are checked (taxable amt not determined, total distribution) Box 7 - dist code 4. Client had trustee do direct transfer to a qualified charitable organization and received acknowledgment for the same amount as in Box 1. Client is 87 years old. Question #1, although she is beneficiary, (I assume this is hers to do with as she pleases) but find no specific examples. Can this IRA still be donated & not taxed to her, would claim no income/ no deduction on Sch A ...Question #2, In pub 590, indicates to enter QCD next to line 15b, how can I do that and efile or does it sound like return must be paper filed ...(client owes a balance anyway) add additional explanation? Thank you for input.