Reported rollover instead of the fund transfer

[Nasasha610]

I mistakenly reported a rollover in 2018. In fact, it was processed as a transfer of assets which did not require reporting. Therefore a letter from IRS requires additional documentation regarding the rollover.

My question: would it be sufficient just to send to the IRS the statements of distribution and transfer of assets?

Or is it better to amend the entire 2018 tax return?

[macuser_22]

Don't amend unless the IRS instructs you to amend.     Just answer the letter.

You can only report a rollover if you have a 1099-R and you only get a 1099-R if you took a distribution so what happened to the money reported on the 1099-R?    

What code was in box 7?

[Nasasha610]

I received 1099-R. The box 7 shows distribution code 7, and IRA/SEP/SIMPLE.

I closed an IRA CD in my bank. They said cant do rollover, I must send the bank-issued check myself. I sent the check to Vanguard, after I discussed this rollover with an agent by phone. He said: just send the check and enclose a note - rollover.

Spoke to Vanguard today after received the IRS letter demanding additional taxes because the rollover was not reported by Vanguard. Vanguard agent says the transaction was processed as transfer of funds.

Which they are not required to report to IRS.

Very confusing to me: Google says that transfer of funds happens between the same types of IRA and rollover between different types of IRA. So the bank people considered this a rollover, while the Vanguard people - the transfer of funds. Was it me who has done something wrong? Or IRS regulations confusing (if Vanguard was required to report the transfer of funds I would not have this headache)

Sorry for a long post.

Thanks

[macuser_22]

Was it deposited in an IRA at vanguard within 60 days of the check being issued?

Have you received a 5498 form from Vanguard?    If so then what line is the amount shown on?

All you really need to show the IRS is the 1099-R copy for the distribution and a Vanguard bank statement (or the 5498) showing that the money was deposited in an IRA within 60 days.

It IRS has been scrutinizing rollovers lately and since nothing on a 1099-R with a code 7 will tell then that the money was actually rolled over and you did just keep the money.

[Nasasha610]

Was deposited within 60 days. Going back and forth with the bank and Vanguard it turns out that it was an indirect transfer. Vanguard says that the bank should not have issued 1099-R that qualifies the transaction as a distribution. But it slipped in the conversation that there were some forms I should have filled out for Vanguard.

The best solution would be for Vanguard to re-qualify the transaction and give me the 5498 form (their tax dep-t will be involved which is not certain whether they will do it). Meanwhile I am sending to IRS my statement with as much documentation as I got.

Caution for taxpayers: careful with indirect rollover, double-check all steps of the transaction.

[macuser_22 · Accepted solution]

The 1099-R is correct and the IRS sending a letter is also normal and to be expected.

If you reported the 1099-R as a rollover with the box 1 amount on the 1040 line 4a with the word ROLLOVER next to it then all you need to do is send the IRS a bank statement form Vanguard that show the same deposit as the rollover amount.

The IRS has no way to connect the receipt of rollover money when the receiving bank is different from the original bank.   Any money deposited into an IRA is required to be reported by the receiving bank on a 5498 but that will not tie it to your rollover - you must report that on your tax return.    Vanguard is required to issue a 5498 showing the rollover amount in box 2.

See 5498 instructions: https://www.irs.gov/instructions/i1099r#idm140302483335632

Box 2. Rollover Contributions

Enter any rollover contributions (or contributions treated as rollovers) to any IRA received by you during 2020. These contributions may be any of the following.

• A 60-day rollover between Roth IRAs or between other types of IRAs.

• A direct or indirect (within 60 days) rollover from a qualified plan, section 403(b) plan, or governmental section 457(b) plan.

• Any qualified rollover contribution as defined in section 408A(e) from an eligible retirement plan (other than an IRA) to a Roth IRA.

• A military death gratuity.

• An SGLI payment.

For the rollover of property, enter the FMV of the property on the date you receive it. This value may be different from the value of the property on the date it was distributed to the participant.

If this was done in 2019 you should have received the 5498 in May of 2020.   You do not report a 5498 at all - it is simply information to you and does not go you your tax return but you can use it as proof of the deposit of the money, but any bank statement that shows the deposit should be enough.

[Nasasha610]

Thank you.

Now I am concerned with the state taxes. They did not send me a letter. But should I do something ahead just in case?

[macuser_22]

Don't worry about something that will probably never happen.