I got a CP2000 for 2017. $16k removed from an IRA for a house down payment, forgot to include as income. IRS unaware it was for a home. What documentation do they need?

Forum|Forum|6 years ago
October 29, 2019
3 replies
18 views

IRS recalculated tax, so I owe more, plus "substantial tax understatement penalty" and interest. How do I document the use for home purchase, and will it make a difference?

TurboTax Self Employed Online

Anonymous

was the money used to buy your first home? in any event the full $16,000 is subject to income taxes. If to buy your first home only a $10,000 penalty free withdrawal was allowed. so if your not 59 1/2 you owe penalties on $6,000 besides the income taxes. if first home, call the number in the letter to see what the IRS wants submitted so penalty on $10,000 might be waived.

xmasbaby0

Level 15

TurboTax does not receive any information from the IRS or your state after your return was filed, so no one at TurboTax knows about a letter you received from the IRS or the state.

(what the letters from the IRS mean)

I GOT A LETTER FROM THE IRS

https://ttlc.intuit.com/questions/3605673-i-got-a-letter-or-notice-from-the-irs

I AM BEING AUDITED

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https://ttlc.intuit.com/questions/2924451-i-bought-max-or-audit-defense-and-now-i-m-being-audited

AUDIT SUPPORT

TurboTax has a special phone number for help with IRS/state tax letters, which will be easier than going through regular Customer Support. At the page below, click on the blue button that says "Get Help from TurboTax Support". Then it will ask you what tax year is your letter. Then it will ask you what the letter concerns. Then it will show you the phone number during posted business hours.

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dmertz

Level 15

If the distribution was an early-distribution from a traditional IRA (code 1 in box 7 of the Form 1099-R and the IRA/SEP/SIMPLE box is marked) and the distribution was for a first-home purchase, you'll need to provide the IRS with Form 5329 Part I to claim exemption from the 10% early-distribution penalty on up to $10,000 of the $16,000 distribution. You'll still owe income taxes on the distribution but you'll avoid $1,000 of early-distribution penalty. If you have basis in nondeductible traditional IRA contributions, you'll also need to provide Form 8606 Part I to calculate the taxable amount of the distribution.

If the distribution was from a Roth IRA and was reported on a Form 1099-R with code J (or code T and the distribution was made less than 5 years since the beginning of the year for which you first made a Roth IRA contribution) in box 7, you'll need to provide the IRS with Form 8606 Part III to determine the taxable amount of the distribution. If the code in box 7 is J and any portion is taxable or is nontaxable only as a result of being a qualified first-home purchase, you'll also need to provide the IRS with Form 5329 claiming exception to the early distribution penalty on the portion of the distribution that would otherwise be subject to penalty.

You can get TurboTax to produce Form 5329 or Forms 8606 by going through the process of using 2017 TurboTax to amend your 2017 tax return to add the missing From 1099-R and answer the follow-up questions.

Even if the amount of underpayment is reduced by preparing either or both of these forms, the underpayment could still remain a "substantial underpayment" depending on how the remaining amount of underpayment compares to your recalculated tax liability.