A participant is overpaid in 2003 and this is not corrected until later in 2004. How should this be reported on Schedule I of the 5500 for the 2003 plan year?

Personally, I would make sure that the distribution amount on the Schedule I corresponds with Form 1099-R. I guess that leads to the question, "What amount should be shown on the 1099-R?", but presumably someone has already made that determination for the situation in question.

My initial thought process was that also. I was thinking since this is an overpayment that the difference should be reported as a receivable. Do you agree? If so, would you report this as other income or other contributions?

As I thought more about this topic, I think that my approach may be flawed. If the 1099-R reported the distribution including the overage, there needs to be a correction made. As I've never seen a subsequent 1099-R issued showing a negative amount, I guess that means an amended 1099-R.

Now I've confused myself as well.

Having attempted to clear the cobwebs, I want to start over.

To account for the overpayment, the options appear to be:

a) Include it on 2004 return as an income item. I would not show this as contributions but as other income.

b) Include it as a negative liability on the 2003 return, which is what this technically appears to be. However, this is somewhat confusing so I don't like this approach.

c) Include it as a receivable on the 2003 return and include the correction as other income.

d) Reduce the distributions shown on the 2003 return based on the accrued correction and the net distribution.

e) Reduce distributions shown on the 2004 return (if some exist) by the correction.


I honestly can't say if one approach is "more correct" than another as long as documentation is given to justify the position. It appears to me that either a or c are the most straightforward.

I think you make it more complicated that it needs to be:

-I agree with WDIK as far as reporting the distribution to match the 1099-R.

Assuming you corrected the 1099-R, if you file on accrual basis, it should be part of your assets as a receivable (you don't need to segregate the receivables on schedule I, I wouldn't put them under negative liabilities.) If you file on cash basis, book it as other income in 04 (and in 03 as well as a loss since your income and expenses won't balance since you didn't count the item in your distribution.)

I agree with Jguazza on the accrual basis reporting - just report it as it is, a receivable. For cash basis reporting, I'd also report it as it happened - full distribution in '03, other income in '04. I would NOT worry about coordinating with the 1099-R. It's not like there's any cross-referencing going on, and on the slim chance that the plan is audited, you simply explain exactly what happened.