You request a clarification of Department of Revenue Letter Ruling 80-13 and 84-109 concerning the reporting requirements for individual retirement account (IRA) custodians and trustees. Letter Ruling 84-109 and 80-13 require an IRA custodian or trustee filing Federal Form W-2P with the Department of Revenue to indicate on the form the total amount distributed to the taxpayer and the amount representing a return of contributions. 1 Letter Ruling 84-109 requires the same information reporting by an IRA custodian or trustee filing a federal form 1099R with the Department of Revenue. 2 Letter Ruling 84-109 also requires the submission to the Department of Revenue of Federal Form 5498. 3
Massachusetts General Laws Chapter 62C, Section 8, requires annual reporting to the Department of Revenue for any distribution of income that is subject to Massachusetts income taxation. The report must state the amount of income paid that is subject to Massachusetts taxation.
Distributions from an IRA are subject to Massachusetts taxation only after the aggregate amount of contributions has been distributed. G.L. c. 62, § 2(a)(2)(F). Accordingly, a report of IRA distributions, whether a 1099R or W-2P, should show the amount representing return of contributions in order to report the amount of income taxable in Massachusetts.
You state in your request, however, that it is extremely difficult to compile the information necessary for a particular reporting custodian to make such a report of total contributions over the life of the account. The difficulty is cause by the frequent transfers and rollovers among various institutions where the IRA may have existed, among other reasons. For the following reasons, we conclude that IRA custodians must file with the Department of Revenue the Federal Forms W-2P, 1099R, and 5498 when they file these forms with the Internal Revenue Service. 4
Federal Form 5498 is a report of the amount of IRA contributions in a particular year. As stated above, reports of the amounts of contributions are necessary to calculate the amount of a distribution that is income taxable in Massachusetts. Because Federal Form 5498 contains information necessary to determine the amount of income subject to Massachusetts taxation under G.L. c. 62C, § 8, an IRA custodian or trustee must file it with the Department of Revenue. Together the forms 5498 and 1099R or W-2P provide the necessary information to report the amount of income subject to Massachusetts income taxation.
Please note, however, that the taxpayers who receive distributions from an IRA must keep records which will show how much of an IRA distribution has been previously subjected to taxation under G.L. c. 62. It would be helpful for IRA custodians and trustees to inform IRA customers that Forms 5498, W-2P, and 1099R are being shared with state taxing authorities as well as with the Internal Revenue Service.
Very truly Yours,
/s/ Ira A. Jackson
Commissioner of Revenue
May 15, 1987
1 Federal Form W-2P is a statement for recipients of annuities, pensions, retirement pay and IRA payments.
2 Federal Form 1099R is a statement of total distributions from profit-sharing, retirement plans and individual retirement arrangements.
3 Federal Form 5498 is a report of IRA contributions for the year.
4 To the extent that Letter Ruling 80-13 and 84-109 are inconsistent with this ruling, they are hereby revoked.