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Retirement plan distribution can be taxed even when check isn’t cashed

The Internal Revenue Service issued a revenue ruling explaining what happens when a distribution check from a qualified retirement plan isn’t cashed by the recipient and found that even when the check isn’t cashed, it still counts as taxable income.

In Revenue Ruling 2019-19, which the IRS released last week, the IRS gave the example of an individual who failed to cash the distribution check she received in 2019 and whether that allowed her to exclude the amount of the designated distribution from her gross income in that year. It also discussed whether her failure to cash the distribution check she received changed her employer’s (or plan administrator’s) obligations in terms of withholding and reporting.

IRS building sign
Sign in front of IRS building in Washington, D.C.

The IRS said the individual’s failure to cash the distribution check she received in 2019 doesn’t permit her to exclude the amount of the designated distribution from her gross income for that year under Section 402(a) of the Tax Code. Also, her failure to cash the distribution check she received doesn’t alter her employer’s obligations with respect to withholding under Section 3405 or reporting under Section 6047(d).

The revenue ruling applies to a specific situation, and the IRS and the Treasury Department are continuing to analyze issues that could arise in other scenarios involving uncashed checks from eligible retirement plans, including situations involving missing individuals with benefits under those plans.

“The ruling does indicate that there may be a different answer when the facts are somewhat different,” wrote Ed Zollars of Kaplan Financial Education in his Current Federal Tax Developments blog.

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