1099-R distribution coding

L1: 1099-R distribution codingI just got my 1099-R that is associated with my SEPP and the distribution code is listed as 1 (early distribution, no known exception). My previous two 1099-R’s from the same trustee had been coded correctly as 2 (early distribution, exception applies). I called the trustee and they said they would no longer take any responsibility for coding the distribution as a 2 and that it was up to the taxpayer and his tax preparer to report the fact that these distributions met the exception for pre-59 1/2 non-penalty status.
Is this position by the trustee acceptable for them to take (that is to not code the distribution correctly, which is reported to the IRS) and if it is acceptable for them to code in this manner what steps do I have to take to correctly report this to the IRS?
Thanks for any response that will help keep the IRS off my backside!2006-01-30 14:04, By: John, IP: [71.208.232.156]

L2: 1099-R distribution codingActually, much of this is the IRS’ fault. In the 2004 Inst for 1099R they simply omitted showing that SEPP distributions should be coded 2. And the custodian never really does know for sure because they don’t know what other IRA accounts could be in your SEPP universe.
Now, the 2005 1099R Inst just came out, and they are again showing that 2 should be used if the custodian believes that the distribution qualifies. Could be that your custodian just decided to play it safe and is letting taxpayers claim their own exception on Form 5329. That is what you need to do – just attach a 5329 and show the exception code against penalty for SEPPs, which has been “02” in the past. 2006-01-30 15:25, By: Alan S., IP: [24.116.165.157]

L2: 1099-R distribution codingAlan:
Thanks for replying to John. I knew the procedures but I just can’t remember that 5329 is the form number to file.
I think more and more custodians will take this position and dump the responsibility for supporting the exception onto the backs of the taxpayer. At the same time you can’t really blame the custodians for taking this position. They can’t know for certain that someone taking SEPP distributions doesn’t have more accounts that are part of the complete SEPP universe.
One custodian may report “Code 2” for their part but another custodian reports “Code 1,” and the taxpayer claims both accounts are part of the same SEPP universe but the wrong amount is distributed for the year. Then a couple of years later during the audit you have a contest between all parties blaming each other for the problem.
Final responsibility for properly filing a true return lies with the taxpayer. I think the custodians are just looking for a way to get out from in front of the inevitable train wreck and excess legal expenses.
Jim2006-01-30 15:41, By: Jim, IP: [70.184.1.35]

L2: 1099-R distribution codingI have two custodians for two seperate IRA’s that I am taking distributions from (since Jan 2000). One of them sends me a code 1 and the other a code 2! Must they both be the same or do I just file the 5329 and leave the codes the way they are? I smell an audit if I do it this way…2006-03-23 21:39, By: Bill, IP: [71.253.226.143]

L2: 1099-R distribution codingFile Form 5329 for the “Code 1” and leave the “Code 2” alone. Why muddy the waters?
Jim2006-03-26 14:19, By: Jim, IP: [70.184.1.35]