Notice of Change from the IRS

[user17791327081]

Filed using TurboTax Deluxe. I received a letter stating that the amount of my taxable Social Security benefits was changed. TurboTax said none of my SS was taxable. The IRS says all of it was taxable. Other income was pension and IRA withdrawals so I exceeded the limit and I believe most of my SS should have been taxable. Can you tell me why TurboTax would have said the SS was not taxable?

I now owe a ton more tax plus penalties and interest.

[rjs]

The most likely reason is that you incorrectly answered the question about living abroad on the next screen after you entered your SSA-1099. The question asks whether you are a U.S. citizen and you lived in one of the eight countries listed in the question. If you did not live in one of those countries you have to answer No. If you answered Yes the taxable amount of Social Security will be zero.

[user17791327081]

Thanks for the reply. I did in fact spend three months in the UK last year, so I checked the box Yes. It was an extended anniversary trip. Does that count or for tax purposes was that just a long vacation?  If it counts, how do I prove to the IRS that I did in fact live there, lease agreement?

[rjs]

I'm not sure of the exact rules.

IRS Publication 915 says that your Social Security benefits are not taxed if you were a "resident" of the UK. The publication does not define "resident" in this context. The TurboTax screen that asks the question says "resided in" at the top, and "lived in" further down.

I'm inclined to think that an "extended trip" does not make you a resident, even if you rented temporary living quarters there, especially if you maintained a permanent home in the U.S. If you want to challenge the IRS's determination, I suggest that you consult a local tax professional, preferably someone who has experience with U.S. citizens living in other countries.