The IRS has now posted two different draft versions of the 2020 Instructions for Forms 1099-R and 5498. The first draft was posted on January 16, 2020, and the second draft was posted on February 14, 2020. While draft instructions do provide a preview of reporting that will likely be required by IRA providers, the IRS may make changes to those draft instructions prior to them being finalized.
The January 16th draft version indicated that IRA providers would be required to report repayments of a Qualified Birth or Adoption Distribution in Box 2 of IRS Form 5498 as rollover contribution. However, the February 14th draft, while not definitive, will require IRA providers to report repayments of Qualified Birth or Adoption Distributions as repayments in Boxes 14a and 14b. The amount of the repayment will be reported in Box 14a and “BA” is to be reported in Box 14b.
There are differences in the two draft versions for how IRA providers will likely be required to report Qualified Birth or Adoption Distributions. While not definitive, IRA providers are to report Qualified Birth and Adoption Distributions in Box 7 of Form 1099-R with a Code 1 (Early distribution, no known exception), a Code J (Early distribution from a Roth IRA), or a Code S (Early distribution from a SIMPLE IRA in the first 2 years, no known exception), when applicable. With IRA providers reporting with Codes 1, J and S, it will be the IRA owner who is responsible for claiming the penalty exception for a Qualified Birth or Adoption on his taxes.
Compliance Systems will continue to monitor for additional changes or for the finalized instructions.