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Deductions & credits
@macuser_22 wrote:
I did not miss that. It does not change the fact that only the financial institution that holds the account can split and issue 1099-R's. I believe that the IRS defers to the plan rules for QDRO's. The court order only *allows* a QDRO, but it is up to the plan rules to put it into place.
I disagree. I don't see anything in the law or those FAQs that makes implementing the QDRO discretionary on the part of the plan administrator. A QDRO "creates or recognizes the right of an alternate payee" to a portion of the participant's benefits. The law goes on to say "the plan administrator shall promptly notify the participant and each alternate payee of the receipt of such order" and "Each plan shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders." Elsewhere the tax code says "Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order."
Arguing that this military pension is not taxable to the ex-spouse because DFAS did not prepare a separate 1099-R is the same as arguing that if my clients don't issue a 1099-NEC, then I don't have to report the income. (However, because DFAS is part of the federal government, it is virtually impossible to force them to issue the separate 1099-Rs, as would be required by Fidelity or any other 401(k) plan administrator, for example.)
If the divorce order contains the required language (as described later), then the ex-spouse's portion of the pension is not taxable to the taxpayer. The taxpayer may want professional advice on how best to report this on their tax return.