IRS letter claiming taxes due on 1099-Q

[amptax]

I received a letter from the IRS on my 2023 tax return saying I did not claim my 1099-Q withdrawal (issued to me, but for my son) income and that I owe taxed on it as well as removed the $2500 child tax credit.  I entered my 1099-Q info as well as my 1098-T info and other college expenses supporting the 529 withdrawal as non-taxable.  Turbotax walked me through adjustments to my education expenses to allow the credit if I recall correctly.  I looked at my 1040 and the 1099-Q info gets recorded on schedule 1, line 8z.  However the 1099-Q worksheet does not get filed.  Error check was clean when I filed and I have followed this process for the prior 3 years of his college education.  Any idea why the IRS called this out?  Is there issues or missing documents Turbotax did not send? 

[AmyC]

No, they randomly audit returns and ask for supporting information. I went through this as well. Just send them all your tuition expenses, room and board, whatever the Q went towards. Write a simple letter. The IRS has a document upload available as well. You can contact the department that sent the letter if they didn't include the portal information.

For example:

Q income of $xxx

Room and board $yyy

Tuition $zzz

and so on

Leaves no taxable amount according to IRS Pub 970.

Enclosed are the expenses to back up the distribution. 

I do qualify for the AOTC because:

list Qualified Education Expenses - Internal Revenue Service

Enclosed are the expenses to back up the credit.

[amptax]

Would be the case if they did not ask for supporting backup proving that is was withdrawn for education expenses?  They said it was unreported income.  I sent them 1099-Q form from Turbotax showing the calculations as well as the 1098-T showing my son was a student that year.  But not other receipts

[KrisD15]

You say they "removed the 2,500 Child Tax Credit", did you mean they removed the 2,500 American Opportunity Tax Credit instead?

In 2023, in order to get an education credit on your return, did the student need to claim income for the 1099-Q withdrawal?  If yes, did the student file and claim that income?

Can you tell us the amount on the 1099-Q as well as Box1 and Box 5 on Form 1098-T? 

Since you sent the copy of the TurboTax worksheet to the IRS, you may need to wait to hear their response. 

IRS Pub 970 explains how the credit work. 

[amptax]

It was the child tax credit, line 19.  I had one dependent under 17 and one over 17.

Yes, if I recall Turbotax adjusted the expenses so that some was income to maximize the education credit.  The 1099-Q account and withdrawals were in my name with my son as the designated student.  Turbotax entered the 1099-Q on line 8z, other income, on schedule 1.  That goes to line 8 on the 1040.

The amount on the 1099-Q was more than the 1098-T as the 1098-T only reflected tuition as my son lived off campus.  His room and board was also used to offset the 1099-Q amount.

[AmyC]

Child tax credit of $2,500 on line 19 means they decided neither of your children qualify as dependents. That is another issue. You might need to call Taxpayer Advocate | Internal Revenue Service at 877-777-4778 or schedule an appointment with your local IRS or TAS office. The taxpayer advocate service is designed to help people get issues resolved with the IRS.

Your reported the Q income and your children were qualified dependents. 

[amptax]

It appears I have  been reading the letter incorrectly.  They did not take away the child tax credit.  They show I claimed it and that they agree with it.  The issue is solely based on the 1099-Q income.  Hopefully sending the backup worksheet and the 1098-T will address the issue that it was for education related expenses.  I guess I am surprised that there is nothing on forms submitted to the IRS regarding the expenses that I enter, especially since they get the 1099-Q from the 529 administrator.  I am also surprised they don't also use the 1098-T that I assume gets sent to the IRS to match and validate that there was a student in college.