Ok, this is a first for me...

One of my clients (who has a high turnover rate due to the line of work), had several terminated participants with small balances. The client requested from the investment company that they be forced out of the plan (which the plan allows for balances under $1,000). For the distributions over $200 (but under $1,000), 20% federal withholding was taken out and sent to the DOT. A few of the participant checks were redeposited (voided checks) at the investment company because they weren't cashed within 6 months. The issue I have is that no 1099 will be issued for those whose checks were cancelled since the participant did not receive the check (or cash the check whichever the case may be). However, I would have to report the withholding on the 945 correct (since the DOT did receive the withholding)? How will this work? If the IRS tries to tie out the 1099's reported withholding with the 945 reported withholding it will not match.

Has anyone ever had this issue? If so, how did you handle it?

Thanks so much in advance!

Even if the 80% net distribution check is redeposited into the plan, the individual did receive a distribution--equal to the 20% withholding amount--so a 1099 must be issued.

Or, if the employer so chose, I guess the employer could redeposit the amount of the witholding into the plan account and then either seek a refund of that withholding or use the withholding as a credit against future employer witholding obligations.

Ah ha! You bring up a VERY good point! That's exactly what to do. (Issue a 1099 for the withholding, showing the distribution for the same amount.) Why didn't I think of that? I guess this time of year my mind goes to mush. Thank God you've got it all together.

I know the participants 1099's will kick back (since the checks did), but oh well, at least everything will tie out to the DOT.

THANKS SO MUCH SIEVE! You've made my day!

Zoey --

I'm glad my response made your day (or night, as it were)--but your statement that I have it all together is an assumption you make without knowing how we goalies live our lives! After all, why would someone who has it all together voluntarily stand in front of screaming slap shots??!!

I wonder if sending the withholding to the Department of Transportation (?) is the correct procedure.

That's where the money comes from to fix our roads...