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I have two IRAs: a Simple IRA (for more than two years), which I contribute to every month, and a Rollover IRA, which I use for automated trading. I had the Simple IRA broker do a trustee-to-trustee transfer, to the Rollover IRA broker. Obviously, it's within the 60-day window and should not be taxed. However, here is what happened:

The transferring broker (Simple IRA broker) issued a 1099-R, with Box 1 (Gross distribution) and Box 2a (Taxable amount) filled in with the amount I transferred.

The receiving broker (Rollover IRA) issued nothing.

Therefore, the IRS is trying to charge me a large amount of taxes for "early withdrawal".

Question: What should each broker have filed (if anything), and what should I have filed (if anything) on my return?

The receiving broker (Rollover IRA) says it is not a reportable event, and therefore they should NOT issue a for 5498 (IRA contribution).

The sending broker says "a Simple IRA distribution is considered an indirect rollover and must be coded as either Distribution code 1 or 7 on the 1099-R form. You should have received a 5498 from the receiving broker."

Of course, the IRS doesn't care that I produced documentation showing the transfer from one IRA to another on the same day.

Thanks

Update

To solve this problem, I had to get the receiving broker to issue a 5498. They did so after I provided them with the 1099-R from the sending broker. Then I sent it to the IRS. A couple of things I learned:

  • The IRS doesn't care about what other evidence you can provide. If they don't get a matching 5498 with the incoming money, they will issue a NOTICE OF DEFICIENCY by certified mail.
  • At that point you have 90 days to petition the tax court (they provide a form) which requires a personal appearance and is only located in some cities. I guess, if I never got the 5498, I could have presented the evidence to a judge.
  • There actually is a "trustee-to-trustee transfer" which does not get reported to the IRS. However, both brokers must code the transfer this way. I had a problem because the sending broker did, but the receiving broker didn't.
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    Are you being audited? If so - get a tax attorney. The IRS doesn't care? They should.
    – littleadv
    Commented Dec 29, 2011 at 21:07

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http://www.irs.gov/pub/irs-pdf/f5498.pdf see the instructions for box 2, it's used to report incoming rollover/transfers. The receiving broker should be acknowledging the transfer with the 5498.

If you read the PDF carefully, any incoming money is reported this way.

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