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My client never asked any questions, just told them he wanted the money and then put it in a CD. He thought the money was his so he could do what he wanted with it and was shocked to find he had to pay taxes on it. Wasn't concerned at any point until I told him he owed $17,000.00. I couldn't blame it on anyone but him.
Debbie Wilson
From: taxchat@yahoogroups
.com [mailto:taxchat@ yahoogroups. com] On Behalf Of Debbie Breedlove
Sent: Tuesday, September 09, 2008 1:08 PM
To: taxchat@yahoogroups.com
Subject: Re: [taxchat] pension payout
Debbie,
It's possible that they used the "broker error" exception. A few years ago, my mom had a similar situation, except that it really was caused by a broker error. She is retired now, but worked as a bookkeeper for over 40 years. She has always done her own taxes, and takes pride in "doing it herself". That year, she cashed in an annuity that was with a broker, because the return on it wasn't very good. It had been my dad's IRA rollover, and it was fully tax-deferred. According to her, she told the broker she didn't need the cash, she didn't want to pay tax on it, and he said he would roll it over to an IRA with the same brokerage house. She didn't notice that the statements for the new account didn't say "IRA Rollover Account," nor did she realize they should.
She got a 1099-R with the full amount, and was shocked that it was reported as taxable. She called the broker, who at first said the tax department at the brokerage house must have made a mistake, and they shouldn't have issued the 1099-R. Then he realized it wasn't even in an IRA account, so he changed his story and said that's what she told him to do. She was upset, but went ahead and filed the return and paid the tax because she was afraid the IRS would penalize her, or put her in jail. She called me after the fact and told me about it. I told her about the exception to the 60 day rule, if the delay was caused by broker error, so she called the broker again. He finally admitted his mistake after he realized she was going to make his life miserable. Probably call him every day for the rest of his life. So they transferred the funds from that account to a new IRA Rollover account and gave her a corrected 1099-R. He also wrote a letter of explanation on the brokerage letterhead (for the IRS), and offered to pay a CPA to amend her return. (Yes, I would have done it for her. She's very private, and I don't think she wanted me to look at her tax return. Her excuse was that she didn't want to trouble me with it.) So she took him up on the CPA offer, since she didn't know how to do an amended return. She got her money back plus interest. It was almost $20,000.
I don't know if that's what your client did, but I know the IRS will allow the exception to the 60 day rule if the taxpayer can show that his intent was to do a rollover, but the broker or bank dropped the ball.
Debbie
I can't remember if I brought this up before. It was during tax season and I didn't have much time to deal with it. Taxpayer is 74. In February of 2007, he cashed out an annuity that was an IRA rollover from a pension plan. Of course, he never checked with anyone and went to the bank and put it in a CD, not an IRA account. The bank never questioned him just took the money. Of course, I go to do the tax return for 2007 and have to pick it up as all taxable income. Taxpayer doesn't understand why it is taxable. I talked to the company who had the annuity and they told me that they had sent him information about the possibility that it might be taxable and he needed to talk to his accountant. He didn't pay any attention to the letter because he didn't understand it. I talked to the bank to see if there was any way they could change the account to an IRA rollover but of course that was a no. So client payed the tax. I have now lost the client because he found someone who amended the return to show it was rolled over. I don't understand how that can be but I'm wondering if there was anything else I could have done. Any ideas?
Sincerely,
Debbie Wilson EA
Preferred Accounting
420 E Beloit St.
Darien, WI 53114
262-724-3635 Tel
262-724-5645 Fax
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