I have received a potential proposed payment due letter from the IRS because my line 5a is greater than 5b. We did take a distribution where a portion was used to pay for hurricane damages, and opted for the three year repayment plan, but the amounts don't add up to the difference they are quoting.
Any help with this is greatly appreciate - thanks!
David B.
2020 is the only year you could divide a distribution by 3.0.
This is not a repayment plan.
It is a "spread the tax" over three years plan.
You had to file form 8915-E in 2020 and 8915-F in 2021,2022 and do it correctly.
Which year is IRS complaining about?
(only for 2020 would 5a be more than 5b.)
Thanks for the reply - it was for 2021. I don't know how the value is calculated but I did enter everything include the federal and state tax deductions that were already included.
There was also a distribution change that allowed funds used for recovery from a hurricane to take the three year option.
I also did file the 8915-F for 2021. I didn't enter these manually but use the worksheets for everything.
If you took the three year option and
your 5b should be one third of your 5a
By the way, I found that TurboTax Online for 2020 and other tax software did not calculate the taxable amount correctly if the bullet items above applied.
I don't know if that was fixed in TurboTax for 2021.
Here's the numbers - 5A is 190023, 5B is 174090. 38,900 was the set aside value for conducting one repair (not all) that remained to be completed. That's what we entered into the loss. So we should have had 12967 each year that was subject to tax, and the total tax amount should have been 8000 per year, per our worksheets. I'm not sure why the difference was 17, 974 between the two, but that's what the IRS says we did not report. We did in the worksheet, so I'm not sure where the number came from.
Good point on the version, but I also own a business so we were using the Home/BIz desktop version, and kept it updated.
As an FYI we did find the cause. We had a similar withdrawal addressed on our 2020 taxes for a smaller amount to address initial damage and repairs due to the hurricane, and made a second withdrawal in 2021. The worksheet did correctly subtract the 1/3 amounts for each year and then add the two totals back for the 5b amount, which should have been less. Unless there is a rule or guidance from the IRS that only allows one withdrawal per storm (which I could not find), then I believe this is correct. I'm still waiting on a response from Turbotax to confirm this.
Thanks for the assistance!
I don't understand how the amount spent on repairs can impact the amoount reported on 1040 Line 5b.
Maybe you can explain what you did there.
8915 allows taxable income taking from a retirement account on a 1099-R to be spread over three years on two exceptions - for COVID and for FEMA natural disasters:
The E and F versions both included this variance - while you're still obligated to pay taxes on the full withdrawal (and penalties if taken before 59 1/2), the taxable amount gets spread over three sequential years.
The loss has to be reported on the 4864 form - the guidance for these is listed here:
https://www.irs.gov/forms-pubs/about-publication-547
$100,000 is the max amount to be spread.
Therefor, 90,023 + 33,333 = 123,356
Assuming no IRA basis, your Line 5b should be $123,356
It can apply to both pension and 401(k) retirement withdrawals. IRA/SEP plans are managed differently. That's how the worksheets in Turbotax are handling it.
We better page @dmertz All IRA goes on line 4 not 5 and the 3 years to spread out the tax are only for IRA. So you must have got it on 5he wrong line.
This is not an IRA, it is a 401(k). Different item. Please review the guidance for 8915-F:
You can take your disaster distribution from either your IRA or your 401k
I merely forgot that line 5 is not an IRA. so no basis calculation..
Correct - the three year plan does apply to all based on the guidance, but in this case, it appeared as different amounts (correctly) between lines 5a and 5b on my 1040. Apparently the reviewer at the IRS that said we owed the difference didn't review the submitted 8915 and casualty forms which confirmed these values
The income from disaster distributions from both IRAs and pensions can be spread over 3 years. [Edit: I guess you sorted that out while I was typing my reply.]
I'm not sure I see a problem with the amounts on lines 5a and 5b. If what was reported on 2021 Form 1040 line 5b was the amount on line 5a plus the 1/3 of the 2020 disaster distribution from pension minus 2/3 of the 2021 disaster distributions from pensions, that seems correct. That should all be reflected on the 2021 Form 8915-F Part II. (Pensions in this context includes all non-IRA qualified retirement plans.)
Given the amount on line 5a, you apparently have other non-IRA retirement distributions that were not claimed to be disaster distributions.
In this case I didn't - both came out of 401(k) accounts, one for myself in 2020 and one from my wife in 2021 for the same disaster, but the total of the two did not exceed $100,000. Everything was correctly stated on the 8915-F, so I'm not sure why the IRS would see this as a lack of payment. They're stating I owe all of the taxable amount in 2021, even though their own guidance in 8915-E says it can be spread over three years. We used Turbotax for both 2020 and 2021, which is how it knew to include the 2020 amounts (imported from previous year).
"line 5b was the amount on line 5a plus the 1/3 of the 2020 disaster distribution from pension minus 2/3 of the 2021 disaster distributions from pensions, that seems correct."
OK, but this is the first mention of a distribution from 2020 spread out. Are you guessing or did I miss it?
In any case, IRS is not accepting the 5b amount.
I suggest you print your 8915 worksheets and submit them (again?) to the IRS with Form 8915.
The worksheets are a required attachment.
"We had a similar withdrawal addressed on our 2020 taxes for a smaller amount to address initial damage and repairs due to the hurricane, and made a second withdrawal in 2021."
I think the IRS examiner simply screwed up.
No, we discovered this when reviewing the returns. I didn't take a "taxpayer" withdrawal shown in the worksheet in 2021, so we went back to 2020 and confirmed the amounts. After reviewing the payment calculations, that's where we figured out why the math was off. And yes, the IRS was not accepting 5b. Their specific statement in the CP2000 stated we didn't say whether the fund was part of a pension or annuity, but the 1099-R clearly stated it. We also did not select any other option that would indicate it was anything but a 401(k) retirement account.
I'm still waiting to hear back from a TT accountant to confirm, I'm 99% sure they didn't review these forms when sending the CP2000. Good idea on including all of the 8915's, we'll add these and 4684 forms with the reply letter from both 2020 and 2021.
"one for myself in 2020 and one from my wife in 2021 for the same disaster, but the total of the two did not exceed $100,000."
If the total of the two did not exceed $100,000, then neither of the distributions exceeded $100,000
But you said: "Here's the numbers - 5A is 190023, "
Your 2021 Line 5a should be less than $100,000, not $190,023 which is greater than $100,000.