[17770]
July 14, 2004
TO: PENSION COMMITTEE No. 32-04
PENSION OPERATIONS ADVISORY COMMITTEE No. 50-04
RE: DRAFT COMMENT LETTER REGARDING NEW 2004 INSTRUCTIONS FOR FORM
1099-R
Attached for your review is a draft Institute comment letter regarding the revised 2004
instructions for Form 1099-R. The draft letter requests certain clarifications regarding the use of
revised distribution codes. Specifically, we request the following:
o Clarify that a payer should use distribution code 1 when the payer does not have
access to relevant factual information. We recommend adding certain specific
examples to the explanations to the “Guide to Distribution Codes” on page R-9
of the 2004 instructions in order to clarify that certain distributions should or
should not be coded in a particular manner under the new rules, particularly
with respect to distribution codes 1 and 7.
o Clarify that payers should report distributions made prior to age 59 ½ using a
code 1 or 2, as relevant, and should report distributions made when the payee is
age 59 ½ or older using a code 7. The requested clarification would require
eliminating or changing certain explanations and examples that appear to have
been unintentionally incorporated from the prior year’s instructions and no
longer seem applicable under the new rules.
o Clarify the proper codes to be used when reporting section 457(b) plan
distributions that include rollovers from another type of plan or IRA.
o Include an explanatory statement in the revised Form 1040 that alerts taxpayers
to the changes in the 2004 Form 1099-R instructions in order to reduce taxpayer
confusion about why distributions that were previously reported using a
particular distribution code are now being reported under a different
distribution code.
o Issue a notice or similar guidance clarifying that a minimal transition period
exists for payers, so that they can update systems to accommodate mid-year
reporting changes.
2
When reviewing the draft letter, please note the following issues:
(1) With respect to the reporting of distributions from governmental 457(b) plans
that include rollover amounts from other types of plan or IRAs, we note the
problems but do not offer a specific recommendation. Please provide
suggestions for how to address these issues.
(2) I received a question regarding 1099-R reporting and the use of code L in
combination with code 4. A code L should be used for a loan treated as a
deemed distribution, and not for an offset. In 2003, the instructions no longer
provided for code L to be combined with a code 2. The reason for this
seemed to be that the only time a participant would get a code 2 would be
due to having terminated in the year in which the participant attained age 55
or later, but had not yet attained age 59-1/2 - a distributable event.
Therefore, all payees who could have received an L2 should actually be
getting a 2 and have the loan offset rather than treated as a deemed
distribution. If this is the case, why is an L4 still an available distribution
code, since death is also a distributable event? Should we address this
question in our comment letter?
Please provide comments to this draft letter by Friday, July 16, 2004. You may contact
me at (202) 326-5835 or lrobinson@ici.org.
Lisa Robinson
Assistant Counsel
Attachment (in .pdf format)