Update from Pension Commissioner Garrett Zimmon:
A police retiree, who had a disability pension, recently made me aware of an Internal Revenue Service (IRS) inquiry regarding his tax return. The retiree contacted LAFPP, who provided him with the information to help resolve the IRS inquiry. I looked into the issue and found out that other police and fire retirees, who also had a service-connected disability pension, received a similar letter from the IRS or the Franchise Tax Board (FTB).
Prior to the 2019 tax year, the LAFPP did not provide a 1099-R tax form to LAFPP retirees who retired with a 100% non-taxable service-connected disability pension. When the LAFPP updated its payroll system, it allowed the LAFPP to provide a 1099-R to those retirees. The 1099-R’s reflected the gross distribution of payments to the retiree. However, since service-connected disability pensions are generally exempt from income taxes, there were no taxes withheld. Apparently, since the IRS or the FTB had no prior record of a LAFPP pension, the 1099-R triggered an inquiry into the pension’s taxability. To address the issue, LAFPP will provide the retiree with a copy of the concerned year 1099-R and a pension verification letter attesting that the retiree has a disability pension.
If you are on a disability pension and receive such a letter from the IRS of the FTB, contact the LAFPP’s Retirement Services Section (Phone: 213-279-3125; or Email: rs@lafpp.com). They will provide the necessary documents for you to respond to the IRS or the FTB and resolve the issue (that the pension is tax-exempt).