IRS letter for COVID -16 withdrawal

[Grace1991]

I took $30k from my 401K in a panic in May 2020 due to cash flow issue caused by COVID, but paid it back in December 2020 in the same plan (rollover back into the same account).

I included the 1099 form from Fidelity and checked the "withdraw due to COVID-19" in Turbo tax when I filed for Yr2020, and the software generated "non-taxable" income result for this withdrawal automatically. 

Now in Yr 2022 I just got an IRS letter stating I have to pay an income tax of $14k(!!!) with penalty due to this. How should I reply to IRS, any suggestions???

[FangxiaL · Accepted solution]

Respond to the IRS letter and present your proof that you have returned the funds back to the same 401(k) account in December 2020. This should resolve the issue as long as you can substantiate your claim. 

Read the letter and call the IRS phone number provided in the notice. 

[fanfare]

@Grace1991 

" the software generated "non-taxable" income result for this withdrawal automatically. "

a covid-related distribution in 2020 was not "non-taxable" so you filed an incorrect tax return.

It sounds like you did not attach Form 8915-E to your 2020 tax return.

What does the IRS letter tell you to do (besides pay up)?

[fanfare]

maybe you did file Form 8915-E but did not mention the amount you repaid in December.

We can't see your tax return.

[Grace1991]

Thanks so much! This is really helpful, I will do that!

[Grace1991]

The 8915-E form was automatically generated by Turbo Tax and I assumed was e-filed automatically to IRS, as I can tell from the print out it was there.

However there was nothing mentioned about the paid-back in 8915-E, nor did the Turbo Tax asked me the questions (or give me an option to input the pay back date). 

[Grace1991]

The 8915-E form was automatically generated by Turbo Tax and I assumed was e-filed automatically to IRS, as I can tell from the print out it was there. However there was nothing mentioned about the paid-back in 8915-E, nor did the Turbo Tax asked me the questions (or give me an option to input the pay back date). 

[fanfare · Accepted solution]

What does the IRS letter tell you to do (besides pay up).?

It will be hard to contact a human at the IRS who can help you.

Meanwhile you can respond in writing that you want to amend.

If you attach the correct Form 8915-E to your letter, they may accept that.

OR they will tell you to file Form 1040-X + 8915-E.

Use your own best judgement.

IRS is way behind on paper correspondence and on Form 1040-X.