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1099-R Rcvd as a distribution on a investment that was a total loss. Client did not get any money back.

dianejhart
Level 4
I have a client who rcvd a 1099-R for $115k as an early distribution. His entire account was lost on a bad investment through the company that held is 401k. His account is 0-he has no money left nor did he get the $115k  that is stated on the 1099-R.  Is it possible to deduct this? Thank you!
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George4Tacks
Level 15

Code K is a hint that you might just put taxable amount = zero. Make sure the client has clear evidence that the value truly was zero.

 


Here's wishing you many Happy Returns

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17 Comments 17
qbteachmt
Level 15

Are you stating the 1099-R is fraudulent and can prove it?

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dianejhart
Level 4

Yes, he did not get the money, the company lost his entire investment and then sent him a 1099-R as a distribution.

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sjrcpa
Level 15

And that $115K was his original investment amount?


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dianejhart
Level 4

Yes that was his full 401k amount and that full amount was invested in 1 company.

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Just-Lisa-Now-
Level 15
Level 15

Are you asking to deduct it or are you asking to not include it as income?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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dianejhart
Level 4

What would be the correct procedure? I input the 1099-R-but he did not actually receive this money, how do I show that? It was a loss of his entire investment, not a distribution.

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rbynaker
Level 13

I'm guessing we need Paul Harvey to sort this out for us.

If the "old" custodian was told to "invest/distribute" $115K to the "new/scammer" custodian, from "old custodian" perspective they made a distribution and issued a 1099-R.  I won't bet too much that this is what happened, but Phoebe's shiny nickel bet comes to mind.

George4Tacks
Level 15

Could this be a rollover? 

 


Here's wishing you many Happy Returns
dianejhart
Level 4

I wouldnt think so, there is no money left.  But again Im not sure of the correct procedure in this case.

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Camp1040
Level 10

What is the code in box 7?

That is why @George4Tacks  is asking about a rollover.

George4Tacks
Level 15

I was thinking indirect rollover. Shyster A distributes $150K to shyster B and issues a 1099R. Shyster B loses all the money and never distributes a 1099R cuz it's all gone. 

https://www.irs.gov/newsroom/help-for-victims-of-ponzi-investment-schemes

Was either shyster investigated by the SEC?  Do a google search for the individual and the SEC.

 


Here's wishing you many Happy Returns
dianejhart
Level 4

Code is K, 1

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dianejhart
Level 4

would I choose rollover and when he gets a notice from the IRS explain it all?

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George4Tacks
Level 15

Code K is a hint that you might just put taxable amount = zero. Make sure the client has clear evidence that the value truly was zero.

 


Here's wishing you many Happy Returns
Just-Lisa-Now-
Level 15
Level 15

Is box 2a filled in or is it empty?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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dianejhart
Level 4

Yes, taxable amount not determined is checked off....

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dianejhart
Level 4

Thank you everyone!

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