 Snafu
with IRA rollover distribution
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 Dear
Tax Talk,
I took a $30,000 distribution from my IRA account, in June 2005,
and replaced it within 60 days.
When January 2006 rolled around, I got an IRS form
from the administrator of the IRA indicating I had taken a distribution
of $30,000. There was no indication or form stating I had replaced
the $30,000 and therefore owed no tax on it.
When I called, I was told that form would not come
out until May. Due to this, I filed for an extension on filing my
return for 2005.
I didn't want to have to pay tax on the $30,000 and
I also didn't want to file a return that made me a likely target
for an audit. The administrator says they couldn't issue a form
stating I had replaced the $30,000 until after the deadline (April
17, 2006) for making contributions for the 2005 tax year.
Is this the way this is supposed to work? If
so, it seems like a very good reason to never "borrow"
money from your own account.
-- Dazed in Florida
 Dear
Dazed,
You can't be perfect all the time. Your IRA custodian needs to file
Form 5498 to report rollover contributions. Since Form 5498 combines
various reporting requirements, including rollovers and contributions,
it does not need to be provided to the taxpayer until later than
most other information-reporting forms.
Since individuals have until April 15 to make contributions
to their IRA, and you could roll over a 2005 contribution up to
60 days after year-end, it would be impossible for an IRA custodian
to issue the form to all its clients before all 2005 reportable
transactions are complete. Therefore, the deadline for filing this
information with the IRS and providing it to participants is May
31 of the following year.
Although you filed an extension, it wasn't necessary,
as the IRS does not match this piece of data with your return on
the day your return is processed. Information matching usually takes
place within a year of filing your return. If there is a discrepancy
at that time, usually a computer-generated notice is issued indicating
the differences and requesting an explanation. (If there are a lot
of differences or other questionable items, the return could get
sent down for an office examination.)
Since you did replace the funds, and the IRA custodian
is responsible for reporting that fact, you could have filed in
a timely way and been on the lookout for the correct reporting of
the transaction. However there was no harm done in filing the extension.
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