jainen Posted June 23, 2013 Report Share Posted June 23, 2013 >>it had been rolled over to an inherited IRA<< Who says? I suggest you see what the client actually signed before you talk to the IRS about who made what mistake. I would guess it more likely that the inexperienced heir made one mistake than that the professional fiduciary made a whole bunch. Maybe the heir thought he could roll it over, maybe he still thinks he did, but a rollover was never actually an option for a non-spouse. So it was indeed (in this scenario) a total taxable distribution, coded 4 (not 4G), which only means it isn't subject to 10% penalty. RMD was required for the year of death, but it was income in respect of the decedent, taxable to the recipient in whose name it was issued. RMD wasn't required for 2012. No wonder the IRS sent a CP2000. The only way out of this is to show IRS the documents, so you might as well get them in hand before you waste your time on hold. 2 Quote Link to comment Share on other sites More sharing options...
Kea Posted June 23, 2013 Author Report Share Posted June 23, 2013 Your explanation is correct. I got the transaction history from the CU last year when preparing the 2011 return. He rolled the IRA to an inherited IRA (i.e beneficiary IRA). I did not get the forms the client filed with the CU, but I'll check to see if the CU still has those. Yes, there was another error at the time of the initial rollover. It was initially rolled to an individual account, but that error was caught at the time it was made. It was then moved to the beneficiary IRA. (I'm sure this is what caused the inital 1099R problem.) Perhaps "rollover" is not the proper word. I agree that I will need to discuss with CU and get all documents before discussing with IRS. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 23, 2013 Report Share Posted June 23, 2013 This post gets confusing and complicated with each new revalation. So from the latest post it appears there were mistakes made as early as 2011 when the spouse passed away. And as jainen pointed out the non-spouse benefeciary of the IRA does not have the option to roll it over anymore. So in 2012 when you prepared the 2011 return did the client discuss this matter? If you find that mistakes were made by your client as well as the bank, in my opinion your position to demand restitution becomes much weaker. Perhaps it is best given the small amount to pay the tax and interest and request a waiver for the penalty. Quote Link to comment Share on other sites More sharing options...
Kea Posted June 23, 2013 Author Report Share Posted June 23, 2013 Yes, it does get complicated. That's why initially left out the original part, because I thought it was a separate issue. I learned yesterday that it was all tied together. I'll get the full, hopefully correct, story from the bank tomorrow. That will determine what, if anything, I need to discuss with IRS. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 23, 2013 Report Share Posted June 23, 2013 Ya gotta luv the way clients always make full disclosure!! 1 Quote Link to comment Share on other sites More sharing options...
Randall Posted June 24, 2013 Report Share Posted June 24, 2013 I agree with janien about possible client mixup on rollover. Client may have thought he rolled it over but non-spouse beneficiaries are different. And I think there might be a direct transfer requirement for non-spouse beneficiaries so you'll have to follow the document trail. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted June 24, 2013 Report Share Posted June 24, 2013 The non-spouse beneficiary does have the option of transferring the account to a beneficiary IRA. However, the non-spouse beneficiary cannot roll the account into their own IRA. 2 Quote Link to comment Share on other sites More sharing options...
Kea Posted June 24, 2013 Author Report Share Posted June 24, 2013 Joan - that is my understanding as well. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted June 25, 2013 Report Share Posted June 25, 2013 Yup, I have a beneficiary IRA from my dad, so I know they can be done! Quote Link to comment Share on other sites More sharing options...
Kea Posted June 25, 2013 Author Report Share Posted June 25, 2013 Me, too. But I will acknowledge that "rollover" may not be the correct term. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 25, 2013 Report Share Posted June 25, 2013 This morning I was on the phone with a large broker's office and I was surprised how little their customer service reps know about taxation of IRA distributions. My client has been with them for 5 years and she was given incorrect information not just once but several times. She turned 70 this year. I told her to call me when she receives the forms from the broker. Just to be proactive I am going to run a birthday report on my client database and filter out folks that are 70 yrs or older and give them a heads up. Quote Link to comment Share on other sites More sharing options...
Kea Posted July 26, 2013 Author Report Share Posted July 26, 2013 I FINALLY got the rest of the story from the credit union. (I'm really surprised how long this took.) The 1099R that the client got last month was a "corrected" 1099R. It now shows just the RMD. (Will IRS know that this replaces the one that showed the full distribution? Who knows.) I had thought it was an addition to the the original 1099R rather than a replacement. When the IRA was inherited in 2011 it initally got put into his own IRA. The person realized this immediately and then moved it to a separate IRA. When they looked into it after the CP2000, they realized it was never designated as a beneficiary IRA. (In her defense, this was her 1st bene IRA and she followed her supervisor's instructions. Too bad the supervisor didn't know how to do it either.) So, in 2013 this got corrected to a beneficiary IRA. At this point, they realized there had been no RMD for the mother (decedent) in 2011. So, they made the RMD in 2013 and issued a "corrected" 1099R showing the RMD instead of showing the whole IRA as a distribution. But since the mother's name is no longer on the account, they issued the RMD to my client. (Edit - and they marked it "Total Distribution") (And he should have started his own RMD in 2012, but I guess we'll address that next.) So.... when I'm writing my explanation to the IRS, should I specify that the RMD is really for his deceased mother? Since it was distributed after her death, it would still be IRD to my client. I want to try to explain it to IRS as simply, clearly and accurately as I can without causing other problems. And, as you can tell from my posts, I tend to have problems keeping things concise. (And when I try, it just backfires on me.) I'm going to amend the 2011 return and send it with the CP2000, even though the due date of that was in June. I'm not sure if IRS did match up the corrected 1099R to the CP2000 notice. I hope I will not need to call them to get this clarified. But it is pretty confusing. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted July 28, 2013 Report Share Posted July 28, 2013 Good luck! Quote Link to comment Share on other sites More sharing options...
joanmcq Posted July 29, 2013 Report Share Posted July 29, 2013 If the mother had not taken her RMD before death, the bene has to take it, and it's not IRD, it's the bene's income. Quote Link to comment Share on other sites More sharing options...
Kea Posted July 29, 2013 Author Report Share Posted July 29, 2013 Ok, sounds like they did that part right. I thought I had read something about not being required since she passed away before Sept of the year after she inherited it. But I didn't delve in too deep since the credit union had already done it. I gave the 1040X to the client Friday night. I hope IRS has no more questions! Quote Link to comment Share on other sites More sharing options...
joanmcq Posted July 30, 2013 Report Share Posted July 30, 2013 Kea, I hope you answered the CP2000, and didn't just amend the return. Amended returns go to a completely different place than the AUR units. The CP2000 response has to be sent to the AUR unit on the notice. Quote Link to comment Share on other sites More sharing options...
Kea Posted July 30, 2013 Author Report Share Posted July 30, 2013 Absolutely! I sent cover letter explaining what happened, 1040X, CP2000 (with the authorization for IRS to discuss with me), & new 1099R (just in case they hadn't matched up to it yet). I was pleasantly surprised that the client said he hadn't heard anything else from IRS even though the due date on the CP2000 was June 5. Maybe they did match up to the new 1099Rs the credit union sent in late May? Naaaahhhh. I had been very concerned that the credit union response did not go with the CP20000. If only I had been in town to supervise the process. (No, that doesn't mean I'm going to give up traveling - simply that my clients need to know that I am still available.) Quote Link to comment Share on other sites More sharing options...
joanmcq Posted July 30, 2013 Report Share Posted July 30, 2013 There is a little known 30 day lag on the due date of the CP2000 & the notice of deficiency being sent. That said, the NOD may be in the pipeline, and you should advise your client to keep an eye out for it. Quote Link to comment Share on other sites More sharing options...
Kea Posted July 30, 2013 Author Report Share Posted July 30, 2013 I did tell him that to let me know if he received anything from IRS. Whether I'm in town or not. Just because I enjoy traveling, doesn't mean I don't keep working my 30 hours per week minimum. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted July 30, 2013 Report Share Posted July 30, 2013 Yeah, I'm getting ready to travel too; but Black Rock City has spotty wifi & cell service, so I just tell people I'm off the grid for two weeks. Everywhere else, I have my iPad & phone at least to keep in touch. I'm leery of the 'cloud' but it sure would make working from a resort easier! Quote Link to comment Share on other sites More sharing options...
Kea Posted July 30, 2013 Author Report Share Posted July 30, 2013 Enjoy your trip. If I only left for the occasional 2 week excursion, I would probably tell my clients the same thing. But since I like to go for a month or so at a time as much as possible between May - August & November - December, I really can't call them vacations. Just change of scenery. And if I have to work anyway, I'd rather do it with a view of the beach or forest or lake... than of my neighbor's house. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted July 31, 2013 Report Share Posted July 31, 2013 Yeah, I hear you! Hopefully at some point I'll get there. Right now it's a lot of vacations: a week for a music festival, two weeks back east, two weeks for Burning Man, and later, two weeks in the UK. Damn, I better get working, gotta pay for the UK still! Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted July 31, 2013 Report Share Posted July 31, 2013 Have fun Joan. You know you earned those trips. Quote Link to comment Share on other sites More sharing options...
Kea Posted August 5, 2013 Author Report Share Posted August 5, 2013 Client just received "Notice of Deficiency" dated 7/29. Looks like I get to call IRS after all. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted August 5, 2013 Report Share Posted August 5, 2013 I wonder if the CP2000 and the 1040X and cover letter that you sent got separated by the person who opened your envelope and sent them in different directions. I do not add a 1040X with CP2000 unless I had a chance to speak to the examiner and that is what they wanted the taxpayer to do, which is rare. Quote Link to comment Share on other sites More sharing options...
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