1099R Code P

[Landlocked]

In March of 2022 I over-funded the Traditional IRA for 2021 and received the 1099R with code P and recorded that in my 2022 tax return. The retirement fund reimbursed before that 2021 tax return deadline. I did not ammend the 2021 return as was suggested by Turbotax. Now it is too late to ammend the 2021, I think. I have received a notice from my state that that same amount on the 1099R was reported to them by the Federal IRS as an adjustment to gross income.  This is the Reason for Adjustment:

"Your Adjusted Gross Income does not match your federal return or is does not include all income as reported by the IRS.

So, since my 2021 return should have been amended and was not amended, should I now amend the 2022 return by removing the 1099R from it? 

I could have a real mess here because the state already reduced the 2025 refund for the amount they say is taxable. I am super confused! 

[MaryK4]

The IRS generally allows you to file an amended return (Form 1040-X) to claim a REFUND within 3 years from the original filing date or 2 years from when the tax was paid, whichever is later, but if you need to correct the income you should file an amended return.

However, since the state said they made the adjustment due to the change in the federal income, the IRS may have already made the adjustment.  You should review the notice that the state sent you carefully, and if you do not agree with the assessment you can prepare the amended returns and submit them to the state with the corrected amounts.  (Note because you did not report the income correctly, interest was most likely added to the amount you owed.)

[Landlocked]

Thank you SO MUCH for responding, since I only have until April 15 to amend the 2022 taxes.

So, the state has assesses taxes due, penalty and interest for the said amount refunded on the 1099R.  I have gone to our wage and income transcript on IRS.gov and under "Taxable Amount" is the full amount of the refund. Seems so strange when Box 2B is not checked and Box 5 indicated Employee contribution of the amount in question.

Could amending my Federal 2022 return solve this problem or will they come back with another assessment for not having that 1099R posted on the 2021 return? I really just want to fix this once and be done with them.

[Landlocked]

Also, would I amend the 2022 return by just removing the 1099 R and explaining the situation. Is that correct?

[ThomasM125]

I believe what happened is you overcontributed to your IRA for 2021 and withdrew the extra funds in 2022. If so, you would have received a Form 1009-R for 2022 that reported the distribution. However, only the earnings which would have been reported in box 2 on the 1099-R form would be taxable. The code "P" in box 7 on the form would tell the IRS that the distribution belongs on your 2021 return and the taxable amount would be the earnings. As such, the distribution would not affect your 2022 return, so it does not need to be amended.

On your 2021 return, I assume you reported the correct IRA contribution so you wouldn't need to amend it for that, but you may have not reported the earnings, which are probably minimal. So, you could amend your 2021 return and pay the tax on the earnings if you did not do that originally. But since the tax is likely minimal, it may not be worth the trouble. 

As far as the state is concerned, they should only be taxing the earnings on the distribution and they should apply that to 2021. Again, the income is likely minimal, so the tax should be as well. You should respond to the state notice and explain what happened and ask them for guidance on what they need to correct the tax they have assessed you.