"The Pension Specialists" Blog

Changes Between the 2010 and 2011 Instructions for Form 1099-R

1. IRS Ends Pilot or Trial Truncation Program Effective for 2011 Forms. The 2011 Form 1099-R is required to be completed to show the recipient’s complete identifying number (SSN) on all copies of the forms.
2. Box 7 has two boxes. In the first box, the IRA custodian will insert the reason code describing the distribution. The second box is to be checked if the distribution is from a traditional, SEP, or SIMPLE IRA
3. After receiving a suggestion from CWF, the IRS changed the last sentence to read, “Do not check the box for a distribution from a Roth IRA or for an IRA recharacterization.” Before it read, “it is not necessary to check the box for a distribution from a Roth IRA or for an IRA recharacterization.” The fact is – if this box was checked for a Roth IRA distribution, the IRS still sent a tax assessment letter asking why the recipient had not included Roth IRA distribution amount “as taxable”on their tax return
4. The IRS has chosen to increase the discussion of prohibited transactions. This is an indication that the IRS expects IRA custodians to report prohibited transactions when they happen on account of the accountholder or the inheriting beneficiary. The new paragraph on page 2 reads, “Prohibited transactions. If an IRA tion with respect to an IRA, the assets of the IRA are treated as distributed on the first day of the tax year in which the prohibited transaction occurs. lRAs that include, or consist of, non-marketable securities and/or closely held investments, in which the IRA owner effectively controls the underlying assets of such securities or investments, have a greater potential for resulting in a prohibited transaction. Report the distribution as you normally would for the IRA that has engaged in the prohibited transaction. Enter Code 5 in box 7
5. With the extension of Qualified Charitable Distributions for 2010 and 2011, the 2011 1099-R instructions again state the reporting rule that there is no special reporting by the IRA custodian for qualified charitable distributions or for qualified HSA funding distributions
6. A new paragraph has been added discussing special distributions arising from distributions under the Employee Plans Compliance Resolution System(EPCRS). In some situations. the IRS has ruled that it will be permissible for an IRA custodian to return certain excess employer contributions (but not elective deferrals), and the earnings on them, under SEP, SAR-SEP or SIMPLE-IRA plans to the employer. In such case, the gross distribution is to be entered in box 1, 0 in box 2a and enter Code E in box 7.

Added a new paragraph for payments to covered expatriates (i.e. individuals who have given up U.S. citizenship). The IRA custodian is to follow the guidance provided by Notice 2009-85.

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