Question on Form 1099-Q

[Dimitrios Paskoudniakis]

My daughter finished her first semester at the end of 2011, and is living in
an off-campus apartment. I have the fully funded 4-year prepaid tuition 529
plan with my state of Maryland. My daughter has scholarships, so the 529
fund had leftover funds available after tuition and fees were paid. I asked
that they send a check directly to the apartment landlord for the balance,
which they did.

I also have the University's Financial Aid office statement indicating the
budget for off-campus housing, and this check is well within one semester of
that budget.

I just received a 1099-Q for a distribution equaling that apartment rent
check but the 1099-Q was in my name and SSN, not my daughter. It has
earnings shown on the distribution. Box 6, Is the recipient the designated
beneficiary, reads "NO".

My daughter also received a 1099-Q for all other distributions. It seems to
me I should have received no 1099-Q, and the amount of the distribution and
earnings on the form I received should have been included on the form my
daughter received.

What are the consequences? Should I demand the Maryland 529 Plan send
corrected 1099-Q forms? How do I explain this on my Federal and Maryland
returns? Since there were no unqualified distributions, can I just ignore
that I received a 1099-Q? I have no taxable earnings.

If the 529 should send a correction, I can see how they would send my
daughter an update with the higher amount, but would I not get one since I
then would have zero distribution, and then how would the IRS know this?

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[removep...@yahoo.com]

On Jan 27, 6:27 am, "Dimitrios Paskoudniakis" <greek...@yeahright.com>
wrote:

> My daughter finished her first semester at the end of 2011, and is living in
> an off-campus apartment.  I have the fully funded 4-year prepaid tuition 529
> plan with my state of Maryland.  My daughter has scholarships, so the 529
> fund had leftover funds available after tuition and fees were paid.  I asked
> that they send a check directly to the apartment landlord for the balance,
> which they did.
>
> I also have the University's Financial Aid office statement indicating the
> budget for off-campus housing, and this check is well within one semester of
> that budget.
>
> I just received a 1099-Q for a distribution equaling that apartment rent
> check but the 1099-Q was in my name and SSN, not my daughter.  It has
> earnings shown on the distribution.  Box 6, Is the recipient the designated
> beneficiary, reads "NO".
>
> My daughter also received a 1099-Q for all other distributions.  It seems to
> me I should have received no 1099-Q, and the amount of the distribution and
> earnings on the form I received should have been included on the form my
> daughter received.
>
> What are the consequences?  Should I demand the Maryland 529 Plan send
> corrected 1099-Q forms?  How do I explain this on my Federal and Maryland
> returns?  Since there were no unqualified distributions, can I just ignore
> that I received a 1099-Q?  I have no taxable earnings.
>
> If the 529 should send a correction, I can see how they would send my
> daughter an update with the higher amount, but would I not get one since I
> then would have zero distribution, and then how would the IRS know this?

>From http://www.irs.gov/pub/irs-pdf/f1099q.pdf I think they check the
void box and send it to the IRS.

I'm surprised why they would have put it in your name. If it's
because you called, maybe it's better if next time she calls.

[Dimitrios Paskoudniakis]

<removep...@yahoo.com> wrote in message
news:e8ae4fcb-be14-46e9...@c21g2000yqi.googlegroups.com...

It wasn't a call but a form I filled out and submitted with a copy of the
University bill for tuition and fees, scholarships (which left money for
other things), and a copy of the apartment lease.

The 529 plan folks replied to me today indicating:

- Any disbursement not paid directly to the university is considered a
disbursement to the account owner.
- As long as the expense is qualified, I need not report anything, but must
have proof that the expense is qualified.

Still sounds fishy to me.

[Phil Marti]

On Jan 27, 9:27 am, "Dimitrios Paskoudniakis" wrote:

> I just received a 1099-Q for a distribution

See Chapter 8 of Publication 970 to find out what, if anything, is
taxable and what, if anything, to show on your return.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

[Dimitrios Paskoudniakis]

"Phil Marti" <prm2...@verizon.net> wrote in message
news:a452084a-5178-4399...@dp8g2000vbb.googlegroups.com...

> On Jan 27, 9:27 am, "Dimitrios Paskoudniakis" wrote:
>
>> I just received a 1099-Q for a distribution
>
> See Chapter 8 of Publication 970 to find out what, if anything, is
> taxable and what, if anything, to show on your return.
>
> Phil Marti
> VITA/TCE Volunteer
> Clarksburg, MD
>

Thank you Phil.

I think that Chapter 8 of Pub 970 is not clearly worded in regard to when a
1099-Q is received by the account owner, and when a 1099-Q is received by
the beneficiary, and what if anything the difference means.

Page 55:

"Earnings and return of investment. YOU [emphasis mine, the account
owner)]will receive a Form 1099-Q, Payments From Qualified Education
Programs (Under Sections 529 and 530), from each of the programs from which
YOU [emphasis mine] received a QTP distribution in 201[1]."

This is the only time Chapter 8 refers to the account owner, not the
beneficiary, receiving a 1099-Q. All subsequent examples suggest the
student/beneficiary receives the 1099-Q, but the wording is not clear.

The wording never clarifies the difference between the owner taking a
distribution on behalf of the beneficiary, and the beneficiary taking a
distribution. This is the difference resulting in whether the owner or the
beneficiary receives a 1099-Q.

Example 1, Page 55:

"Before Sara [the beneficiary] can determine the taxable part of HER
(emphasis mine) QTP distribution ...."

The above implies the beneficiary receives the 1099-Q, not the owner.

Then Example 1 goes on to state:

"Sara's [the beneficiary] Form 1099-Q shows that $950 of the QTP
distribution is earnings."

This sentence clearly indicates the beneficiary as 1099-Q recipient.

Example 2, Page 55:

"An American opportunity or lifetime learning credit (education credit) can
be claimed in the same year THE BENEFICIARY TAKES A TAX-FREE DISTRIBUTION
FROM A QTP [emphasis mine], as long as the same expenses are not used for
both benefits."

Again, the above suggests the beneficiary is the recipient of the 1099-Q.

If I get a 1099-Q, I interpret that as far as the Federal and Maryland
governments are concerned, I the account owner, not the beneficiary, took a
distribution, and I am not a college student who has no qualified expenses.

Example 2 suggests only one Form 1099-Q for the computations of taxable
portion of earnings. For the current 2012 tax year, I plan to take an
American Opportunity Credit, and I now expect both I and my daughter will
receive Forms 1099-Q. I will have to compute a taxable portion of earnings
on the first $4000 of tuition distribution. Based on where the funds go, my
1099-Q has no tuition distribution on it (just apartment rent), while my
daughter's 1099-Q includes all tuition distribution, so I guess I'll just
use the earnings on only her 1099-Q for computation of the taxable portion
to report next year on her 2012 income. But, that I also receive a 1099-Q
adds an unnecessary layer of complexity.

Section on Coordination with Coverdell ESA Distributions, Page 55

"If a DESIGNATED BENEFICIARY RECEIVES DISTRIBUTIONS [emphasis mine] from
both a QTP and a Coverdell ESA in the same year ...."

Again, this scenario suggests to me that the student/beneficiary should be
the recipient of the 1099-Q.

Example 3, Page 56

"Example 3. Assume the same facts as in Example 2, except that instead of
receiving a $5,300 distribution from HER (emphasis mine) QTP, Sara [the
beneficiary] received $4,600 from that account...."

Again, this suggests the beneficiary received the distribution, and should
be the recipient of the 1099-Q.


So there you have it.

Phil, I will assume the intent of your response is that as long as a
distribution is put on a 1099-Q in my name, as long as all of the
distribution went to my daughter's [the beneficiary's] QEEs, I have no
tax/penalty issue on the earnings. In this case, all of the distribution on
my 1099-Q went to QEEs for the beneficiary.

The Maryland 529 Plan replied to my question on my receipt of the 1099-Q
that any payment to the University generates a 1099-Q in my daughter's name,
and any payment that goes to any other entity (ie Apartment landlord,
bookstore, ...) generates a 1099-Q in my name. They indicated that as long
as the distribution in my name went to QEEs for my daughter, I will not have
a tax/penalty issue, but I will have to have receipts/paperwork to prove
that the expenses from the distribution were for QEEs if I don't report
income on the earnings.

By the way, I live near Clarksburg, just a few miles east of Damascus in
western Howard County.

[Phil Marti]

On Jan 28, 10:28 am, "Dimitrios Paskoudniakis" wrote:

> Phil, I will assume the intent of your response is that as long as a
> distribution is put on a 1099-Q in my name, as long as all of the
> distribution went to my daughter's [the beneficiary's] QEEs, I have no
> tax/penalty issue on the earnings.  In this case, all of the distribution on
> my 1099-Q went to QEEs for the beneficiary.

Correct. If you follow on to the instructions for line 21 of the 1040
you'll find that there's nothing to report on the 1040 if none
of the distribution is taxable.

> By the way, I live near Clarksburg, just a few miles east of Damascus in
> western Howard County.

Hello, neighbor! I do returns at the Damascus Senior Center.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD