Not cashing a check received from a retirement plan before year does not change the requirement to report that distribution as income in the year the payment is made per Revenue Ruling 2019-19.
The ruling provides the following facts that are being analyzed:
Employer M is the plan administrator of Plan X, a qualified retirement plan under § 401(a) that does not include a qualified Roth contribution program under § 402A(b). A distribution of $900 is required to be made from Plan X to Individual A in 2019. Individual A has no investment in the contract within the meaning of § 72 with respect to her Plan X benefit, has a calendar year taxable year, and has never made a withholding election with respect to her Plan X benefit. Employer M makes the required $900 distribution, a designated distribution within the meaning of § 3405(e)(1), by withholding tax as required under § 3405(d)(2) and mailing a check for the remainder to Individual A. Although Individual A receives the check and could cash it in 2019, she does not do so. Individual A does not make a rollover contribution with respect to any portion of the designated distribution, and no other exception to income inclusion under § 402(a) applies.
A “designated distribution” under IRC §3405(e)(1) refers to one subject to the withholding of federal income taxes rules found at IRC §3405(d).
The ruling finds that simply holding onto the check when she received the check and could have cashed it does not cause the distribution to be exempt from tax in 2019. IRC §402(a) which governs distributions from an employer retirement plan provides:
(a) Taxability of beneficiary of exempt trust
Except as otherwise provided in this section, any amount actually distributed to any distributee by any employees’ trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to the distributee, in the taxable year of the distributee in which distributed, under section 72 (relating to annuities).
Note that the provision explicitly names the year in which the distribution is to be taxable to the recipient. Nothing in the provision indicates that the recipient has to actually cash the check. So the IRS notes in the ruling that “[i]ndividual A’s failure to cash the distribution check she received in 2019 does not permit her to exclude the amount of the designated distribution from her gross income in that year under § 402(a).”
The ruling notes that, as well, the failure of the participant to cash the check does not relieve the plan administrator from the requirement to have taxes withheld from the distribution, nor does it change the requirement that the distribution must be reported on a Form 1099R for that year.
In a footnote the IRS notes that the ruling applies regardless of whether the taxpayer “keeps the check, sends it back, destroys it, or cashes it in a subsequent year...”
The ruling does indicate that there may be a different answer when the facts are somewhat different. The ruling provides:
The Department of the Treasury and the Internal Revenue Service continue to analyze issues that arise in other situations involving uncashed checks from eligible retirement plans described in § 402(c)(8)(B), including situations involving missing individuals with benefits under those plans.