Retirement plan distribution check not cashed

[MikeInOH]

My son left an employer in 2016 with a small (<$500) balance in a retirement plan.  He was sent a check that year for the balance (from which 20% federal tax was withheld according to transaction details we found on the retirement plan's website), but he moved before the check was received and never cashed it.  He never received the associated 1099-R, and we did not account for the distribution nor the tax withheld on his 2016 tax return.  In 2020, he received a check from a third party for the original distribution amount (minus the 20% federal withholding taxes), less $50 (assumed to be a fee).  He cashed that check in 2020.

Do I need to file an amended 2016 tax form to account for the distribution, or do I include it in 2020 taxes since that is when he actually received/cashed the check?  I read somewhere that uncashed distribution checks may have corrected 1099-R's submitted to the IRS by the plan administrator to show no distribution.  If I include the distribution in his 2020 taxes, how do I account for the federal tax withheld in 2016, and do I add the $50 fee back into the distribution amount or just use the net check amount?

[macuser_22]

The 2016 1099-R and payment that was paid in 2016 (whether received and cashed or not)  is 2016 income that should have been reported on a 2016 tax return.   Being "sent a check" is constructive receipt.   Moving without informing the employer, post office, IRS and others of the address change is the taxpayer fault and is not an excuse.

   The 3 year statute of limitations for receiving a 2016 refund has expired, but the clock for failing to report taxable income runs for 7 (and sometimes 10) years.  I additional 2016 tax was due then the interest on that unpaid tax started on April 15, 2017 and increases each month until paid.

There is a good chance that the unreported income would have no change in the tax due depending on all other 2016 tax information. 

TurboTax no longer supports 2016 - you might need a tax professional to amend 2016.

[dmertz]

I don't see how the payer could issued a corrected 2016 Form 1099-R indicating that no distribution took since they would have paid the tax withholding to the U.S. Treasury in 2016.  Your son could obtain his Wage &  Income transcripts for 2016 and 2020, and see what is present with regard to Form 1099-R, but these are unlikely to be updated until much later this year.  If he wants to wait and see what these transcripts show before filing, he'll need to request a filing extension.

Assuming that this is still being reported as a 2016 distribution, normally he would file an amended 2016 tax return to claim a refund, but since the statute of limitations is 3 years, the deadline for amending was April 15, 2020 (assuming that he filed his 2016 tax return on or before April 15, 2017), so it's too late now.  It's also too late for the IRS to assess taxes on the underreported 2016 income this small.  It's entirely possible that the IRS recalculated his 2016 tax liability and found it to be covered by the 20% tax withholding, but if they did, it seems like they might have issued a refund based on that recalculation.

[dmertz]

Constructive receipt means that the check was able to be obtained by the recipient.  With both the check and the Form 1099-R going to an old address, it seems unlikely that there would have been constructive receipt, although I don't think that that would have precluded this from being a distribution made in 2016.  (What it lack of constructive receipt in 2016 might have done is to have allowed the funds to be rolled over upon receipt of the replacement check, but that probably would made no sense since it's too late to recover the tax withholding.)

[fanfare]

the other tax software guys  (at least one) go back to 2016 and earlier so no problem there.

[dmertz]

This has nothing to do with tax software going back to 2016.  It has to do with the fact that the statute of limitations on a claim of refund for 2016 expired in 2020.