Cares Act IRA Rollover of Stock Removed as Part of RMD

[musiuloco]

I rolled over a partial RMD of stock from my IRA account and returned to original account. Brokerage firm did not show the value of the rolled over stock as equal to th at of the distribution. Brokerage firm showed the value to be that of the stock on the day of the rollover. Therefore the rollover deposit does not equal the original dollar value deposited in the IRA. Brokerage firm only matched the number of shares originally withdrawn. In other words the rollover matches the number of shares but not the dollar value. Brokerage firm refuses to correct the the dollar amount of the rollover. Therefore I will not benefit from the Cares Act that allows rollovers in 2020. What is my recourse?

[macuser_22]

For an "in kind" distribution of property, stock in this case,  from a IRA to be rolled back, only the exact same shares of the same stock can be rolled back.    You cannot replace the stock with money - otherwise you are not rolling over (returning) what was distributed.

Cash replacing the stock would probably be an excess contribution subject to penalty.

Per IRS Pub 590A

https://www.irs.gov/publications/p590a#en_US_2019_publink1000230570

The same property must be rolled over.

If property is distributed to you from an IRA and you complete the rollover by contributing property to an IRA, your rollover is tax free only if the property you contribute is the same property that was distributed to you.

[macuser_22]

If you did roll back the same stock then the 1099-R you receive for the distribution will show the value at the time of distribution which is the value that is rolled back.  You simply say that the entire amount was rolled back.

[dmertz]

Since the dollar amount in box 2 of the 2020 Form 5498 reporting the rollover contribution will not agree with the dollar amount actually rolled over, you'll want to include an explanation statement with your 2020 tax return to show that the dollar amount rolled over is the value of the rolled-over shares on the date of the distribution, otherwise the IRS is likely to question the amount reported as rolled over.

[musiuloco]

Thanks and excuse delay in response. I waiting for email alert of response to post. Probably must check format.

Now to your reply. I agree with all your post. Problem - when shares rolled over value of shares less than when removed for distribution. Broker shows the reduced value as the rollover amount that does not match the distribution value. This rollover value will be the amount on the 1099R issued by broker. Therefore I do not receive the benefit of the full distribution. I do not believe a statement by me accompanying the TAX FILING will be accepted by IRS. Yes, the number of shares rolled over is the same lot distributed.

Appreciate your review of this issue.

[musiuloco]

Thanks but believe additional backup from brokerage firm required. Possibly bokerage firm did not report amount correct in statement.

[macuser_22]

When you report this on your 2020 tax rerun you enter the 1099-R for the distribution and indicate in the interview  when it asks what you did with the money, you select that it was rolled over.  That's it.  Nothing about a 5498 or the nature of the rollover (like kind stock) goes on your tax return whatsoever.

The only concern would be if the IRS (in a year of so) questions that the rollover amount is different than the 5498 amount they might questions it.   Personally, I would wait to see if that ever happens and if it does, then answering their letter with the explanation that the financial institution entered the value of the stock when it was rolled back (which was the value at the time), but like kind rollovers are the same shares of stock that were distributed so the entire amount that was distributed was rolled back, which was done.   The value at the time of the distribution only matters if it was not rolled back.

[dmertz · Accepted solution]

To add to what macuser_22 said, the change in value between the time of the in-kind distribution and the rollover contribution of those same shares is irrelevant, even though the receiving custodian must report on Form 5498 the value of the rollover contribution based on the value at the time of the rollover contribution.  The dollar amount of the rollover is based on the value of the shares at the time of the distribution, not the value when the rollover contribution is made.

Personally, I would anticipate that the IRS would question the amount actually rolled over and include a written statement with my filed tax return explaining that the rollover was the rollover of the same shares distributed as an in-kind distribution.  The IRS has recently been increasing the scrutiny of rollovers and has automated systems to compare tax returns with Forms 1099-R and 5498.

[musiuloco]

Many thanks & I agree that IRS will probably question the value  amount of rollover. My present problem is pinning down the brokerage firm as to what number they will place on form 5498. Presently the rollover amount shown on the monthly statement is not the value of the distribution but the value of the shares on date of rollover.

Thanks for your explicit answer. I continually request brokerage  to specify what amount will be shown on form 5498 without success. Cannot find a way around this roadblock yet.

Thanks again

[musiuloco]

My response to your reply slightly late. Have been giving serious thought to your statement to place the the value of the distribution as the amount of rollover on the 1009R. Am concerned the the IRS will question and then what do I show as proof? The only proof would be a copy of the brokerage statement page with the distribution amount. The brokerage firm offers no assist or advice hiding behind the statement "we do not give tax advice". They caused the problem in the first place.

Thanks for your thoughts.

[rjs]

I've been watching this discussion, and I don't see what the problem is. I think you are worrying unnecessarily.

dmertz said that the value on the date of the rollover is what the brokerage is required to report on the Form 5498. It sounds like they are doing it correctly.

Why is this a "roadblock"? The distribution and the rollover took place in 2020. You don't have to do anything about it until you file your 2020 tax return next year. You don't need to know right now what the brokerage will put on the Form 5498. You'll find out when you get the 5498 in January. And even then it doesn't really matter. dmertz and macuser_22 told you that your 2020 tax return will use the distribution amount from the 1099-R, no matter what the brokerage puts on the 5498.

If you do need "proof" for the IRS, what you will need is the confirmations or statements from the brokerage showing that the distribution and the rollover were in-kind shares of stock, and that the shares were the same. Just save all your records related to the distribution and rollover.

[dmertz · Accepted solution]

The custodian is required to report in box 2 of the Form 5498 the value of the rolled-over shares as of the date of the rollover contribution, which may (or in this case, is) different for the value on the date of the distribution.  This is why I suggest including an statement with your tax return to explain why the value on in box 2 of the Form 5498 shows a different amount than the amount actually rolled over (the value on the date of distribution; if there is a rollover of only part of the distribution, the dollar value that you must indicate to TurboTax as the amount rolled over is the dollar value on the date of distribution).  It's likely that the IRS's automated system implemented in recent years will flag the discrepancy and require an examiner to determine whether or not to treat it as an underreporting of income.  The explanation statement that you include with your mailed tax return will generally be sufficient to satisfy the examiner.  If the examiner needs additional supporting documentation, they will ask for it.

CFR 1.401-1(b)(1) indicates that the distribution is not taxable if the entire amount of cash and property distribution (only property in this case) is rolled over.  To effect reporting of a nontaxable rollover, you indicate to TurboTax that the entire distribution was rolled over (assuming that there will not have been any other distributions from this IRA that were not rolled over).  What is reported on your tax return is the net taxable value, $0 in this case, not the dollar value at the time of the rollover.  It's the IRS's automated system that compares the amount of the distribution, the amount reported as taxable and the amount reported by the receiving custodian in box 2 of Form 5498 to determine if there is any discrepancy.  It this case there will be a discrepancy that your explanation statement will address.

[dmertz]

I've made several edits to my previous post, please reread it.  In particular, in one place I had mistakenly typed "Form 1099-R" when I meant to type "Form 5498."

[macuser_22]

Just to note:  An attached statement means that the tax return cannot be e-filed but must be mailed.   Because mailed tax returns are still electronically processed after a data entry clerk manually (or scans) the mailed tax return into the processing system.  While the IRS processing system has a place for attached information  to be entered, sometimes (often?) it is missed and just stapled to the paper return which is stored.

Also, the check between the 1099-R, your tax return and the 5498 is usually done by an IRS computer that generated a computer generated letter showing the mismatch.    Unless a human intervenes and reads the statement then you might still get a letter since most such letters are never seen by a human until you receive it and mail back your response.

If you  choose to mail the return and the statement then keep a copy in case the IRS computer still send you a letter in a year or two that there is a mismatch on the 5498 form.  If you do, just respond to the letter with the copy.

[dmertz]

I believe that the Internal Revenue Manual indicates that an automatically detected mismatch flags the Form 1099-R reporting on the tax return for examination by a human.  The examiner should then look at the tax return, and, if an appropriate explanation statement was included, it should be present in the IRS-scanned copy for the examiner to take into account.  There is a good chance that the examiner will then make the correct determination that there is, in fact, no underreporting of income and will mark the flagged Form 1099-R as having been reported correctly, but examiners are human and humans can make mistakes.