Amount From Uncashed Plan Distribution Check Included in Income

Amount From Uncashed Plan Distribution Check Included in Income

Internal Revenue Service

The IRS ruled (Rev. Rul. 2019-19) that an individual’s failure to cash a distribution check from a qualified retirement plan doesn’t allow her to exclude the amount of the distribution from gross income under <a href="/research/federal/usc26/402#cptl-0000002" resolve="/lr/resolve//cptl#cptl-0000002">section 402(a)</a> and does not alter the employer’s withholding or reporting obligations. In the facts of the revenue ruling, an employer and plan administrator of a qualified retirement plan distributes an amount that must be made from the plan to an individual in 2019 and is considered a designated distribution under <a href="/research/federal/usc26/3405#cplq-0000032" resolve="/lr/resolve//cplq#cplq-0000032">section 3405(e)(1)</a>. The employer withholds tax and mails a check for the remainder to the individual who receives the check in 2019 but fails to cash it or make any rollover contribution in the year. For purposes of the revenue ruling, whether the individual keeps the check, returns it, destroys it, or cashes it in a subsequent year is irrelevant. The IRS determined that because the individual has no investment in the contract within the meaning of section 72 and no exception to <a href="/research/federal/usc26/402#cptl-0000002" resolve="/lr/resolve//cptl#cptl-0000002">section 402(a)</a> applies, the amount of the designated distribution is includable in her gross income in 2019. <a href="/research/federal/usc26/3405" resolve="/lr/resolve//cplq">Section 3405</a> provides federal income tax withholding rules for designated distributions as defined under <a href="/research/federal/usc26/3405#cplq-0000032" resolve="/lr/resolve//cplq#cplq-0000032">section 3405(e)(1)</a>. The IRS determined that the employer withheld tax as required under <a href="/research/federal/usc26/3405#cplq-0000022" resolve="/lr/resolve//cplq#cplq-0000022">section 3405(d)(2)</a> from the individual’s designated distribution. An employer maintaining a plan from which designated distributions may be made may also have reporting obligations under <a href="/research/federal/usc26/6047#cnxm-0000007" resolve="/lr/resolve//cnxm#cnxm-0000007">section 6047(d)</a>. The IRS determined that the distribution to the individual, including both the amount of the check and the amount withheld, is a designated distribution under <a href="/research/federal/usc26/3405#cplq-0000032" resolve="/lr/resolve//cplq#cplq-0000032">section 3405(e)(1)</a> that exceeds the reporting threshold. Thus, the employer must report that designated distribution for 2019. The IRS ruled that the individual’s failure to cash the distribution check doesn’t allow her to exclude the distribution amount or change the employer’s withholding obligations under <a href="/research/federal/usc26/3405" resolve="/lr/resolve//cplq">section 3405</a> or the employer’s reporting obligations under <a href="/research/federal/usc26/6047#cnxm-0000007" resolve="/lr/resolve//cnxm#cnxm-0000007">section 6047(d)</a>. Treasury and the IRS continue to analyze issues that arise in other situations involving uncashed checks from eligible retirement plans described in <a href="/research/federal/usc26/402#cptl-0000047" resolve="/lr/resolve//cptl#cptl-0000047">section 402(c)(8)(B)</a>, including situations involving missing individuals with benefits under those plans.

The IRS ruled (Rev. Rul. 2019-19) that an individual’s failure to cash a distribution check from a qualified retirement plan doesn’t allow her to exclude the amount of the distribution from gross income under section 402(a) and does not alter the employer’s withholding or reporting obligations.

The IRS ruled (Rev. Rul. 2019-19) that an individual’s failure to cash a distribution check from a qualified retirement plan doesn’t allow her to exclude the amount of the distribution from gross income under section 402(a) and does not alter the employer’s withholding or reporting obligations. In the facts of the revenue ruling, an employer and plan administrator of a qualified retirement plan distributes an amount that must be made from the plan to an individual in 2019 and is considered a designated distribution under section 3405(e)(1). The employer withholds tax and mails a check for the remainder to the individual who receives the check in 2019 but fails to cash it or make any rollover contribution in the year. For purposes of the revenue ruling, whether the individual keeps the check, returns it, destroys it, or cashes it in a subsequent year is irrelevant. The IRS determined that because the individual has no investment in the contract within the meaning of section 72 and no exception to section 402(a) applies, the amount of the designated distribution is includable in her gross income in 2019. Section 3405 provides federal income tax withholding rules for designated distributions as defined under section 3405(e)(1). The IRS determined that the employer withheld tax as required under section 3405(d)(2) from the individual’s designated distribution. An employer maintaining a plan from which designated distributions may be made may also have reporting obligations under section 6047(d). The IRS determined that the distribution to the individual, including both the amount of the check and the amount withheld, is a designated distribution under section 3405(e)(1) that exceeds the reporting threshold. Thus, the employer must report that designated distribution for 2019. The IRS ruled that the individual’s failure to cash the distribution check doesn’t allow her to exclude the distribution amount or change the employer’s withholding obligations under section 3405 or the employer’s reporting obligations under section 6047(d). Treasury and the IRS continue to analyze issues that arise in other situations involving uncashed checks from eligible retirement plans described in section 402(c)(8)(B), including situations involving missing individuals with benefits under those plans.

Sec. 402 Taxability of beneficiary of employees' trust

Sec. 3405 Special rules for pensions, annuities, and certain other deferred income

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Amount From Uncashed Plan Distribution Check Included in Income