Re: [taxchat] 1099-Q EARNINGS

2007 Internal Revenue Service

Instructions for

Form 1099-Q

Section references are to the Internal Revenue Code unless the state, enter the name of the state on the first name line

otherwise noted. and the name of the program on the second name line.

Reminder For a Coverdell ESA, enter the name and EIN of the trustee.

In addition to these specific instructions, you should also use

the 2007 General Instructions for Forms 1099, 1098, 5498, Recipient's Name and Social Security

and W-2G. Those general instructions include information Number (SSN) about:

• Backup withholding For a qualified tuition program, list the designated

• Electronic reporting requirements beneficiary as the recipient only if the distribution is made

• Penalties (a) directly to the designated beneficiary, or (b) to an

• Who must file (nominee/middleman) eligible educational institution for the benefit of the

• When and where to file designated beneficiary. Otherwise, list the account owner as

• Taxpayer identification numbers the recipient of the distribution. Enter the SSN for the

• Statements to recipients applicable recipient.

• Corrected and void returns For a Coverdell ESA, enter the name and SSN of the • Other general topics designated beneficiary as the recipient.

You can get the general instructions from the IRS website at www.irs.gov or by calling 1-800-TAX-FORM Account Number

(1-800-829-3676). The account number is required if you have multiple

accounts for a recipient for whom you are filing more than

one Form 1099-Q. Additionally, the IRS encourages you to

Specific Instructions for Form 1099-Q designate an account number for all Forms 1099-Q that you

File Form 1099-Q, Payments From Qualified Education file. See part L in the 2007 General Instructions for Forms Programs (Under Sections 529 and 530), if you are an 1099, 1098, 5498, and W-2G.

officer or an employee, or the designee of an officer or Box 1. Gross Distribution

employee, having control of a program established by a

state or eligible educational institution and made a Gross distributions from a qualified tuition program,

distribution from a qualified tuition program. A trustee of a whether in cash or in kind, include amounts for tuition credits

Coverdell education savings account (ESA) must file Form or certificates, payment vouchers, tuition waivers, or other

1099-Q to report distributions made from Coverdell ESAs. similar items. Gross distributions also include a refund to the

account owner or the designated beneficiary, or to the

Do not file Form 1099-Q for a change in the name of the beneficiary upon death or disability. For more information on

designated beneficiary on a qualified tuition program reporting distributions, see Proposed Regulations

account if the new beneficiary is a member of the former section 1.529-4.

beneficiary's family. Also, for a Coverdell ESA, the new

beneficiary must be a member of the designated Gross distributions from a Coverdell ESA include

beneficiary's family and be under age 30 (except amounts for a refund, a payment upon death or disability, or

beneficiaries with special needs). a withdrawal of excess contributions plus earnings.

A family member of the designated beneficiary includes If earnings and basis are not reported for Coverdell

their spouse, children and their descendants, stepchildren ESA distributions, leave boxes 2 and 3 blank. Do not

and their descendants, siblings and their children, parents CAUTION enter zero. Instead, you must report the fair market

!

and grandparents, stepparents, and their spouses. It also value (FMV) as of the end of the year in the blank box below

includes the first cousins of the designated beneficiary. boxes 5 and 6. Label the amount "FMV." See Notice

2003-53, which is available on page 362 of Internal

Statements to Recipients Revenue Bulletin 2003-33 at www.irs.gov/pub/irs-irbs/

If you are required to file Form 1099-Q, you must provide a irb03-33.pdf, for more reporting requirements.

statement to the recipient. Furnish a copy of Form 1099-Q or an acceptable substitute statement to each recipient. Box 2. Earnings

Also, see part M in the 2007 General Instructions for Forms To determine the earnings (or loss) on the gross distribution

1099, 1098, 5498, and W-2G. reported in box 1, use the earnings ratio described in

Proposed Regulations section 1.529-3 and Notice 2001-81.

Payer's Name and Federal Identification You can find Notice 2001-81 on page 617 of Internal

Number Revenue Bulletin 2001-52 at www.irs.gov/pub/irs-irbs/

For the payer's/trustee's name and federal identification irb01-52.pdf.

number, enter the name and employer identification number Enter the earnings in box 2. If there is a loss and this is

(EIN) of the qualified tuition program. For a program not the final year for distributions from the account or there

established and maintained by a state that uses the EIN of are no earnings, enter zero in box 2. Enter a loss in box 2

Cat. No. 32260M

only if this is the final year for distributions from the account. educational institutions or check the "State" box if the

Any earnings are not subject to backup withholding. distribution is from a qualified tuition program established by

If you are reporting a distribution from a Coverdell ESA a state. Otherwise, check the "Coverdell ESA" box.

that includes a returned contribution plus earnings, you Box 6. Designated Beneficiary Checkbox should file two Forms 1099-Q—one to report the returned

contribution plus earnings, the other to report the distribution Check the box if the recipient is not the designated

of the other part of the account. beneficiary under a qualified tuition program or a Coverdell

You should file a separate Form 1099-Q for any ESA (see section 529(e)(1)).

trustee-to-trustee transfer.

For Coverdell ESAs, if you are not reporting earnings, Distribution Codes

see the Caution on page Q-1. For 2007, you may, but are not required to, include one of

For Coverdell ESAs, if you are reporting earnings on the following distribution codes in the blank box below boxes

a distribution of excess contributions, use the 5 and 6. You may abbreviate as needed. For example, for

method under Regulations section 1.408-11 for distribution code 1, you may enter "distr. code 1."

TIP

calculating the net income attributable to IRA contributions

that are distributed as a returned contribution. Distribution Code Use this code for...

If the amount in box 2 includes earnings on excess 1–Distributions Distributions (including

contributions, enter distribution code 2 or 3 (as applicable) in transfers) to the recipient and

the blank box below boxes 5 and 6. See Notice 2003-53 for any direct payments to a

more information. qualified educational facility.

However, use code 2 or 3 for Box 3. Basis withdrawals of excess

Enter the basis included in the gross distribution reported in contributions.

box 1. The amount in box 3 must equal box 1 minus box 2.

2–Excess contributions plus Withdrawals of excess

For Coverdell ESAs, if you are not reporting basis, see earnings taxable in 2007 Coverdell ESA contributions

the Caution on page Q-1. and earnings unless code 3

For determining basis of a Coverdell ESA, you may applies.

rely on Notice 2001-81. 3–Excess contributions plus Withdrawals of excess

earnings taxable in 2006 contributions from a Coverdell

TIP

ESA. Advise payees, at the time

Box 4. Trustee-to-Trustee Transfer the distribution is made, that the

Checkbox earnings are taxable in the year

in which the contributions were

Check this box if the distribution was made directly made.

(trustee-to-trustee transfer) from one qualified tuition

program to another. For a Coverdell ESA, check this box if 4–Disability Distributions you made after the

the distribution was made directly to another Coverdell ESA recipient was disabled (see

or a qualified tuition program. section 72(m)(7)).

In a trustee-to-trustee transfer between qualified 5–Death Payments to a decedent's

education programs, the distributing program must provide beneficiary, including an estate.

you with a statement reporting the earnings portion of the

distribution within 30 days of the distribution or by January 6–Prohibited transaction Prohibited transactions. See

10th, whichever is earlier. You must properly account for this sections 408(e)(2) and in computing the earnings or (loss) reported in box 2 and the 408(e)(4) for similar rules that apply to a Coverdell ESA. basis reported in box 3.

If you do not have records showing that a gross

distribution from a Coverdell ESA made in 2007 was

a trustee-to-trustee transfer, leave box 4 blank.

TIP

Box 5. Checkbox

Check the "Private" box if the distribution is from a qualified

tuition program established by one or more private eligible

Q-2

 

 

----- Original Message -----

From: bobva@aol.com

To: taxchat@yahoogroups.com

Sent: 11/18/2008 10:53 AM

Subject: [taxchat] 1099-Q EARNINGS

 

I have a client who had a distribution of $18,946 on a 1099-Q of which the earnings were $4,552. Her educational expenses were $3,100.  She would then have income of $1,452.  It appears the $1,452 is also subject to a 10% penalty?  Is that correct?,___

---

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IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.

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