Incorrect 1099R, how to correct with Turbotax

[dmertz]

@skfromaz2 , for the transaction to be a trustee-to-trustee transfer the original IRA custodian must make the payment directly to the receiving IRA custodian, with the payee being something like "New Custodian Inherited IRA FBO skfromaz2."  If that was done, there is no reason that they should not correct the Form 1099-R to reflect the fact that no distribution was made to you despite having mistakenly internally coded the transaction as a distribution.  If they refuse and you need to file a substitute Form 1099-R (Form 4852) showing $0 in boxes 1 and 2a, you'll want to make it clear in the explanation that the payment was never made to you personally but was instead paid directly to the receiving IRA.  It might be helpful to obtain from the old custodian documentation showing the payee for this distribution.  Without documentation supporting an assertion that the funds were not paid to you, the IRS is likely to believe the Form 1099-R from the custodian over the substitute provided by you.

If they instead made the payment to you personally, the distribution is irrevocable and was not eligible to be deposited into another inherited IRA and the deposit of such funds into an inherited IRA would would generally be an excess contribution to that IRA.  (Congress has considered changing the law to permit rollovers of such distributions, but such a change hasn't yet become law.)

[skfromaz2]

@dmertz @tdn1 Thanks.  I have the monthly statement from the new custodian side "skfromaz2 beneficiary IRA of skfromaz-relative" that says "direct transfer $xxxx".  Which should support the claim that it was a direct transfer.   I plan on calling the old custodian tomorrow so we'll see.  You'd like to think they'll correct it given a proper description of what happened.   I did want to give them one more chance (and to say that I'd tried twice,) before calling the IRS (the 800 # is in the small print instructions for form 4852.)  

[dmertz]

A code-4 Form 1099-R with you as the payee is an assertion by the custodian that the payment was made to you and that's what you need to refute.  The determining factor is who or what was the actual payee on the payment made by the old custodian.  If the payee was you, this was an impermissible rollover.  If the payee was your new IRA (or new custodian) FBO you, it's a nonreportable trustee-to trustee transfer as long as the new custodian deposited the money directly into the new inherited IRA.  You would want to obtain documentation from the old custodian that indicates the payee of this payment.  (If you did not have to endorse any check made out by the old custodian, presumably the payment was not made to you.)

There is a Written Determination (PLR 200204048) made by the IRS to a non-spouse beneficiary who asserted that a series of partial of transfers of an inherited IRA to several new custodians were trustee-to-trustee transfers and were not taxable, but later when the IRS received information that the beneficiary received a Form 1099-R from the original IRA custodian they revoked the original determination and made a new determination (PLR 200228023) that that transaction was a taxable distribution that was not eligible for rollover.  This suggests that the IRS gives greater weight to the assertions of the old custodian than they do to the assertions of the beneficiary (absent any documentation that contradicts the assertion of the old custodian).

[skfromaz2]

@dmertz I spoke to the old custodian and they (after talking to their IRA back-office people,) agreed the 1099-R shouldn't have been issued as the transfer was custodian-to-custodian.  (after I made my request for a corrected 1099-R using those terms.)   They will issue a corrected 1099-R to "fix" the first one.  I didn't get to talk to the IRA back-office people directly so don't know what they're going to put on the corrected 1099-R to undo the "distribution" event.   After playing with every code combination in TurboTax the only thing that reflects the "not a tax event" nature of the transfer it is a zero $ amount.  So we'll see and I may be talking to them again. 

fwiw, while on the phone with them I was looking through another file and found a copy of the form I sent to the old custodian that told them to do a transfer to the new custodian and provided the new account number and contact information.  I didn't have to use that but glad I found it.    Thanks for your replies and I'll update when something new happens. 

[dmertz]

Yes, the corrected Form 1099-R must be the same as the original except have $0 in every box that on the original had a nonzero dollar amount.

I'm glad that you finally got them to see the light.  That correction will avoid any issues with the IRS's interpretation of this transaction (which the IRS would have had no knowledge of had it been done correctly to begin with).  What you experienced in trying to get this corrected is not unusual.  Family members of mine have had the same experience that require sending emails to bank management to get the appropriate correction.  Numerous people posting on the forum have had the same experience.  It seems relatively universal that bank local-office personnel are inadequately trained in this area.

[skfromaz2]

I received the corrected 1099-R from the old custodian.  Zero dollar amounts in box 1 and 2a.  Everything else the same (2b checked, 2a box "total distribution" checked, box 4 zero(as before), box 7 code 4, IRA/SEP/Simple checked.   Turbo tax accepted all that (with no tax effect as you'd expect with zero $,) so hopefully the IRS will too. 

If they inquire I have the original instructions to the old custodian indicating a custodian-2-custodian transfer & giving the new custodian and account info plus the new custodian statements showing how the Beneficiary IRA is defined and the $ amount deposited which equals the amount in the first 1099-R. 

Thanks for your help!