My Form 1099-R is incorrect

[dubina666]

I sold 200 shares of AAPL stock in my SEP / IRA account [number removed] for $56,431 and I gifted 100 shares of AAPL to each of my three children.  My Form 1099-R shows a Gross Distribution / Taxable Amount of $92,899.25.  That amount is incorrect because the 300 share of AAPL were gifts.  Meanwhile, an agent of TD Ameritrade informed me that they have only one Distribution code (7) so they cannot discriminate between taxable distributions and non-taxable gifts.  Furthermore, the IRS uses the amount designated by TD Ameritrade's 2020 Form 1099-R to compute my 2020 tax.  When I tried to contact my local IRS office to make an appointment to discuss the problem, I was shuffled back and forth by their bots and I could not make an appointment.  Logically, that means I will have to go to the IRS Office, take a number, wait to be served, told that I need to make an appointment. make the appointment for another day, then go home and wait until that day comes to pass.  I say "Logically" because that happened to me in the past.

What to do?  Inquiring mind wants to know.

David S

[DoninGA]

Why do you think the gifts given to individuals would reduce the taxable amount of the distribution?

Gifts given to an individual are not reported on a tax return.  Gifts received from an individual are not reported on a tax return, regardless of the amount received.

If your gift given to an individual is greater than $15,000 then you are required to report the gift given on an IRS Form 709.  There are no gift taxes owed if your total of all gifts ever given is less than $11.58 million.

TurboTax does not support Form 709.  The Form 709 is not sent with your federal tax return.  It is filed separately and mailed to the address shown in the Form 709 instructions

Go to this IRS website for a Form 709 - https://www.irs.gov/forms-pubs/about-form-709

[dubina666]

"Why do you think the gifts given to individuals would reduce the taxable amount of the distribution?"

"Gifts given to an individual are not reported on a tax return."

TD Ameritrade reported my sales of AAPL (100 + 100) shares correctly, but they also reported my gifts of AAPL (100 + 100 + 100)  shares on their 1099-R.  They used Distribution code (7)  for both transaction sets because they have no other way to code it.  I was told that by one of their SEP / IRA agents.  He told me to ask the IRS to sort it out.

Over.

[DoninGA]

@dmertz Could use your expertise concerning gifts to individuals trying to be reported on a 1099-R

[VolvoGirl]

And for one thing a 1099R does not report sales, only distributions.  If you took a distribution (in any form) it is taxable.  Doesn't matter what you did with it.  The only way for them to get part of your IRA is to inherit it.

[dubina666]

VG, what about this?

https://finance.zacks.com/much-transfer-stocks-kids-11611.html

"The most inexpensive way to transfer stocks is to grant them to your child as a gift. There are limits to this, however. You can give each child up to $15,000 a year without being tax."

Over

[VolvoGirl]

Yes that's right.  But your stocks were not in a personal broker account.  They were in your IRA.  That works different.  You don't report buys or sells or transactions in a IRA account.  Your contributions are tax deferred.  When you take anything out of a IRA you pay the tax on it unless you roll it over to another IRA account in your name.      

[macuser_22]

If you gifted stock with a "like kind" transfer to your grand children then the taxable amount of the "gift" is the value of the stock at the time of the transfer.    

As far as the IRS is concerned, it is no different then if you sold the stock within the IRA and then distribute the cash to yourself and gave the cash to the grandchildren.    Either way it is taxable income to you and a 1099-R box 7 code of 7 is correct.

Gifts given by you have no special tax treatment and are taxable as ordinary income.

[macuser_22]

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@dubina666 wrote:

VG, what about this?

https://finance.zacks.com/much-transfer-stocks-kids-11611.html

"The most inexpensive way to transfer stocks is to grant them to your child as a gift. There are limits to this, however. You can give each child up to $15,000 a year without being tax."

The "tax" that the article is referring to is the "gift tax" on gifts over $15,000 per year that is reported on a separate 709 form.    That has NOTHING to do with ordinary income tax on an IRA distribution.  If the value of the stock transferred to each child is more than $15,000 then you must also file a form 709 (Gift tax return ) that TurboTax does not support.   There is no actual tax to pay but your lifetime $11.4  million exemption is reduced by that amount.

Two different taxes for different reasons, totally unrelated to each other.

[dubina666]

VolvoGirl

It looks like you were right.

You can't give money from your IRA to another person, or even another person's IRA, without first taking it out of your own. When you take the money out of your IRA, you're going to have to include the distribution as part of your taxable income, which is taxable at your income tax rate.