[15981]
April 30, 2003
TO: 529 PLAN ADVISORY COMMITTEE No. 25-03
OPERATIONS MEMBERS No. 13-03
PENSION MEMBERS No. 19-03
PENSION OPERATIONS ADVISORY COMMITTEE No. 23-03
TAX MEMBERS No. 26-03
TRANSFER AGENT ADVISORY COMMITTEE No. 42-03
RE: COMMENT LETTER ON FORMS 1099-Q AND 5498-ESA
Earlier this year the Internal Revenue Service released new 2003 forms and instructions
for Forms 1099-Q and 5498-ESA. These forms effectively change the reporting requirements for
Coverdell ESAs (“ESAs”). Under the new rules, payers are required to report basis and
earnings for ESAs. Payers must report ESA contributions and rollovers, including trustee-to-
trustee transfers on Form 5498-ESA (instead of Form 5498). Payers must file Form 1099-Q
(instead of Form 1099-R) to report distributions or rollovers from ESAs.1
In the attached comment letter, the Institute urges that the following changes and
clarifications be made to the new forms and instructions:
o ESA record keepers should not be required to track earnings and basis in ESA
accounts; this responsibility should remain with the ESA account holder. ESA
record keepers would continue to report ESA contributions and withdrawals as
they historically have done, but now would do so on new Forms 5498-ESA and
1099-Q.
o Any obligation imposed on ESA record keepers to calculate earnings and basis
should be imposed only prospectively, for new accounts opened after a
transition period sufficient to permit record keepers to comply with the new
requirements.
o The requirements of Notice 2001-81 should be clarified with respect to ESA
reporting, including the requirement to aggregate accounts.
1 See Institute Memorandum to the 529 Plan Advisory Committee No. 11-03, Operations Members No. 6-03, Pension
Members No. 9-03, Pension Operations Advisory Committee No. 8-03, Tax Members No. 11-03 and Transfer Agent
Advisory Committee No. 19-03, dated February 19, 2003, for a discussion of the new Forms 1099-Q and 5498-ESA and
to view copies of the forms and instructions.
2
o Several technical issues regarding reporting on Forms 5498-ESA and 1099-Q
should be clarified or resolved; among other things, a change is needed to the
deadline for furnishing Copy B of Form 5498-ESA to the account holder, so that
record keepers will have time to comply with the requirements.
Lisa Robinson
Assistant Counsel
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attachment for memo 15981.
Attachment (in .pdf format)