IRA Custodian Errors

Form 1099-R with Code G

 When a Code G is inserted in box 7 of Form 1099-R, the IRA custodian is representing to the IRS that the taxpayer did a non-taxable IRA rollover.  The taxpayer reports the dollars rolled over on Form 1040, but does not pay any tax on the rollover.

It has come to our attention that the IRS will sometimes ask the taxpayer to see the rollover paperwork to verify the non-taxable rollover. Why? Apparently there is confusion among taxpayers and some IRA custodians as to what constitutes a valid IRA rollover.  For example, while a taxpayer can do unlimited transfers between IRA accounts if the monies are transferred directly from one IRA custodian to another, the same does not hold true if the taxpayer “touches” the funds. For example, if a taxpayer transfers funds from one IRA account and takes possession of those funds, the taxpayer has 60 days to transfer those funds to another IRA account to make the transfer tax-free. In the latter situation, the taxpayer is allowed to make such a transfer only once every 12 months. If the taxpayer makes this 60-day rollover request to more than one custodian during a 12-month period, the custodians have no way of determining if the transfer was non-taxable.

Tax Planning Tip: When making an IRA rollover, taxpayers need to retain all of their rollover paperwork including IRS Form 5498 and the statements from both the old IRA and the new IRA so that the rollover can be substantiated.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

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About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,  Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.