2011 ESOP Benefit Payment Government Filings

If you paid any ESOP or other qualified retirement plan benefit payments last year you will have to prepare and file some government forms. The General Instructions for Forms 1099, 1098, 5498, and W-2G provides guidance on how to prepare and file the forms:

• IRS Forms 1099-R – Copies B, C, and 2 must be furnished by January 31, 2012 to anyone who received a plan distribution (of $10 or more). Copy A must be filed with the IRS by February 28, 2012 or April 2, 2012 if filing the forms electronically. 

  Generally, you are required to file electronically if you file 250 or more information returns.

  IRS Publication 1220 - Specifications for Filing Forms 1098, 1099, 3921, 3922, 5498, 8935, and W-2G, Electronically provides the procedures for reporting electronically through the IRS Filing Information Returns Electronically (FIRE) System. 

  IRS Revenue Procedure 2011-40 provides specifications for filing electronically for the 2011 tax year.

• IRS Form 1096 – This form must be sent as a transmittal document whenever paper copies of the IRS Forms 1099-R are sent to the IRS. Because the paper forms are scanned during processing, you cannot file with the forms printed from the IRS website.

• IRS Form 945 – This form is used to report federal withholding from non-payroll payments, including distributions from qualified retirement plans. The deadline is January 31, 2012. However, if you made deposits on time in full payment of the taxes for the year, you may file the return by February 10, 2012.

As you are preparing the Form 1099-R - Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., you may be processing some forms for participants that received lump sum distributions that may qualify for net unrealized appreciation (NUA) treatment. Assuming a distribution qualifies for NUA treatment, the amounts would generally be recorded as follows:

• Box 1 – Gross distribution – This amount will be equal to the fair market value of the shares plus and cash distributed.

• Box 2a – Taxable amount – This amount will be equal to the lesser of the cost basis and the fair market value of the shares distributed plus any cash distributed.

• Box 6 - Net unrealized appreciation in employer's securities – This amount will be the difference between box 1 and box 2a.

2011 Changes

• Renumbering of boxes.   Boxes 10 through 15 have been renumbered as boxes 12 through 17, respectively. The blank box formerly to the left of former box 10 has been numbered and labeled “ 10 Amount allocable to IRR within 5 years” and a dollar sign ($) has been added. The box “1st year of desig. Roth contrib.” has been numbered 11.

• Prohibited transactions.   Information regarding identifying and reporting prohibited transactions relating to an IRA has been added to Specific Instructions for Form 1099-R.

• Reporting excess employer contributions returned to an employer.   Instructions for reporting excess employer contributions (plus earnings on them) returned to an employer have been added to Distributions under Employee Plans Compliance Resolution System (EPCRS).

• Rollovers to designated Roth accounts within the same plan (in-plan Roth rollovers).   Instructions for reporting in-plan Roth rollovers that are direct rollovers have been added to Designated Roth accounts starting on page 4 and the instructions for boxes 1 and 2a. Also, for more information on in-plan Roth rollovers, see Notice 2010-84.

• Distributions from designated Roth accounts allocable to in-plan Roth rollovers.   Instructions for reporting distributions from a designated Roth account allocable to an in-plan Roth rollover have been added to Designated Roth Account Distributions on pages 2 and 8 and the instructions for new box 10. Also, for more information on in-plan Roth rollovers, see Notice 2010-84.

• Code B.   Distribution Code B has been reworded for reporting all distributions from designated Roth accounts.

• Code D.   Distribution Code D has been eliminated. See Distribution Codes 8 and P.

You should also be aware of the rules for Reporting a Rollover to Roth IRA on IRS Form 1099-R and the 2009 Change in Reporting Distributions of 404(k) Dividends on IRS Form 1099-R.