Backup withholdings from Roth IRA

[Mr Jones]

I have a self-directed Roth IRA, an IRA LLC, that has a brokerage account at Ameritrade.  The EIN was not listed correctly with Ameritrade and so they began taking backup withholdings in 2021.  I didn't realize this until recently and sent them a corrected w9.  Now I have the challenge of trying to figure out how to recoup the taxes withheld.

Ameritrade treats the account as a single member llc and not an IRA.  The single member in the LLC is the IRA, which is standard for self directed IRA llc accounts.  Since they don't treat it as an IRA I don't get a 1099-R for it. 

So on my taxes I created a substitute 1099-R.  I put the gross distribution as the tax amount withheld in box 1.  I checked box 2b "tax amount to be determined" and I put the taxes withheld in box 4  (Fed income taxes withheld).   For the code in Box 7 I chose "T-Roth distribution, exception applies"

I filled out form 4852 explaining the substitution reason.  

I have prior contributions so there was no tax on a withdrawal since it is a Roth.  But I really don't want to withdrawal this money.   I can check off the rollover box and deposit the money back (if that even is allowed) but the amount of the withholdings for 2022 are around $20k and I don't have a spare $20k lying around to wait a year for the IRS to pay me back. 

Can someone please advise first off if I am reporting this correctly on my taxes and then any thoughts how to handle getting this money back in to the IRA? Help is greatly appreciated. 

[ThomasM125]

I assume the tax withheld was reported under your social security number. If so, it will be on deposit with your taxes paid in during 2021. So, once you file your tax return it will be applied to your tax and should be refunded to you even if you don't report it. That being said, it is conceivable that the IRS may be confused by the withholding being reported on a form 1099-R and it is possible that they would withhold the tax pending reporting on a form 1099-R. So, it would seem prudent to report the transaction the way you have, accept I would recommend you simply report the withholding, not the distribution, since that didn't actually occur. So, enter the withholding in box 4 and use code T in box 7, and leave the other boxes blank.

[dmertz · Accepted solution]

It seems that you should be filing Form 990-T on behalf of your IRA to claim a refund paid to the IRA of the backup withholding.

See the instructions for Form 990-T with regard to the special instructions for a claim of refund of backup withholding:  https://www.irs.gov/pub/irs-pdf/i990t.pdf

There is no Form 1099-R involved in this because this tax withholding was not a distribution from the IRA.  The tax withholding was made on behalf of the IRA, not on your behalf.  (IRAs can incur a tax liability if they incur Unrelated Business Taxable income, but that doesn't seem to be the case here.)  This has nothing to do with your individual tax return.