More Form 1099-R Reporting Changes to Come

October 31, 2006 – The IRS has confirmed to BISYS® Retirement Services that it will soon be posting an announcement regarding further changes to the paper version instructions for the 2006 Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc., and one additional change to its electronic filing instructions. The original 2006 instructions for Forms 1099-R and 5498, IRA Contribution Information, were issued September 15, 2006. The new changes, as communicated to BISYS, are noted below. BISYS will post the official IRS announcement at this Latest News site as soon as it becomes available.

  • The original 2006 instructions indicated that IRA revocation reporting also applies to IRAs that “are closed at any time by the IRA trustee or custodian pursuant to its resignation or such other event mandating the closure of the account.” The IRS now states that this will be changed to apply to trustee/custodian resignations that are “due to a failure of the taxpayer to satisfy the Customer Identification Program requirements described in Section 326 of the U.S. Patriot Act.”

  • The original 2006 instructions included a change for Traditional (and SEP) IRA reporting in Box 2a, Taxable amount. It indicated that rather than generally including in Box 2a the same amount as reported in Box 1, Gross Distribution, Box 2a should be left blank (generally, unless it is a return of contributions with net income attributable (NIA) before the tax return due date). The IRS now indicates that it will not required Box 2a to be left blank, but will again require the total amount distributed to be included in Box 2a.

  • The original 2006 instructions included a change in reporting of a return of contributions with NIA before the tax return due date (under IRC Sec. 408(d)(4)), indicating that code 7, Normal distribution, was to be used with codes 8, Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2006, or P, Excess contributions plus earnings/excess deferrals taxable in 2005, when applicable, in Box 7, Distribution code(s). The IRS now states that code 7 will not be used with code 8 or P. If an individual age 59½ or older takes a distribution with NIA, only code 8 or P, whichever is applicable, will be used.

  • In addition, the IRS has indicated an error in their electronic reporting instructions for reporting with the new code B, Designated Roth account distributions. The electronic instructions include a Form 1099-R Distribution Code Chart that improperly indicates codes 7 and P may be used with code B. The IRS has now stated that these two codes cannot be used with code B. The paper instructions for Forms 1099-R and 5498 show the correct code usage.