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CCH® PENSION — 02/23/12

Clarification of Form 1099-R could improve taxpayer compliance, TIGTA finds

Improved examinations of tax returns listing retirement income could increase taxpayer compliance, generate substantial revenue and reduce the tax gap, according to a study released by the Treasury Inspector General for Tax Administration (TIGTA). TIGTA conducted its review to determine whether the IRS has effective controls and processes in place to ensure that taxpayers and retirement income providers are correctly computing and reporting the taxable portion of retirement income.

"Our report found that correctly reporting taxable amounts of retirement distributions on Form 1099-R can be confusing for taxpayers," said Treasury Inspector General for Tax Administration J. Russell George. "By implementing TIGTA's recommendation to clarify the form, the IRS can reduce taxpayer confusion and improve compliance," he added.

TIGTA determined that the automated underreporter (AUR) program is effectively determining the proper reporting of retirement income when Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., discloses the taxable amount of the retirement distribution. However, additional tax form information, if available, would improve compliance.

TIGTA's recommendations

TIGTA recommended that the Commissioner, Wage and Investment Division: (1) revise the Form 1099-R to clarify the meaning of the taxable amount not determined box in order to reduce taxpayer confusion and include the dates needed to identify retirement savings program distributions and transfers not rolled over within 60 days as required, and (2) establish procedures to transcribe additional lines from various tax forms.

The IRS substantially agreed with TIGTA's recommendations and plans to revise the instructions to Form 1099-R to clarify taxpayer responsibilities and the amounts to report. The IRS plans to consider the feasibility and the benefits of including the dates of distributions and their respective contributions to identify distributions not rolled over within 60 days. However, TIGTA maintains that this information would be useful to the AUR program when taxpayers do not utilize direct transfers between financial institutions.

Source: TIGTA press release, February 8, 2012.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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