Filed 2017 tax return. Year my husband died. His 401 was transferred over to one in my name and I signed a form in my financial advisors office stating the fact that I did this and not receive a lump sum check. Now they are questioning that amt. Saying it was reported as income and I must pay tax and penalties on it. Help I'm over my head on this. Saw and accountant and she is working on it. What the Irs is asking for now is half the amt. Of my IRA? It will wipe me out. I'm a 72 year old grandmother???
You were required to report on your 2017 tax return the distribution from the 401(k) and indicate that you rolled the money over to another retirement account. You would do this in 2017 TurboTax by entering the 2017 Form 1099-R into TurboTax and answering any follow-up questions that TurboTax presents. TurboTax would have included the gross amount of the distribution on Form 1040 line 16a or Form 1040A line 12a but excluded the amount rolled over from the amount on line 16b or 12b, and included the word ROLLOVER next to the line. (Note, however, that if you mailed your 2017 tax return instead of e-filing, it's possible for the IRA data transcriber to miss the ROLLOVER notation.)
It sounds like this was a direct rollover and the 2017 Form 1099-R would have had codes 4 and G in box 7 and a zero in box 2a indicating that this rollover was nontaxable. However, without you reporting this as having been rolled over, the IRS generally assumes that the rollover was not actually completed and you somehow diverted the money somewhere other than to the IRA. If the rollover deposit into the IRA was completed in 2017, your IRA custodian would have provided 2017 Form 5498 showing the rollover contribution. You can present this to the IRS to substantiate that a rollover was actually performed. Under these circumstances, a call to the IRS is sometimes sufficient to clear things up since they would already have copies of the Forms 1099-R and 5498.