Received notice from IRS that filed 2023 Trust tax return had wrong tax computation. Has anyone else had a similar experience?

[B Parker]

I viewed my saved electronic copy of the trust return I can't see how TurboTax calculated the Trust tax.  It appears the tax rate used in the software is substantially lower than the rate the IRS is using based on the additional tax due.  Does anyone else have a similar experience?

[tagteam]

Tax tables and worksheet for 2023:

[tagteam]

It is unlikely (but not impossible) that the program made an error in calculating the tax due based upon your input, if accurate.

Can you provide more details?

[B Parker]

@tagteam , Thank you very much for your reply.   I appreciate your patience in awaiting mine.  Using your feedback re: Worksheet and rates, I've worked through this for the last day to present a coherent response. 

Additional detail. 

Background.   The IRS Notice agrees with the taxable income on the return as filed, i.e., the total income, total deductions and taxable income shown on the Notice all agree with the filed return.   

The issue with the IRS appears to be the calculated amount of tax.  The TurboTax software calculated tax on the filed return, Line 28, as $1,608.  The IRS Notice shows total taxes due of $2,633.

Referencing Schedule G, Line 1a Qualified Dividends Tax Worksheet (thank you!).  Screen shot of that worksheet in TT file is here. [Thanks, by the way, for the opportunity to figure out how to imbed this snapshot (took me all morning.😊]

 I note the figure on the IRS’ Notice agrees with line 22 [tax as computed using 2023 Trust Tax Rate Schedule].

One of your earlier posts, @tagteam , in [‎December 17, 2023 1:15 PM ] addressing @Dave-estate, highlights that qualified dividends are taxed at capital gains rates.  [I realize his was an estate, whereas mine is a trust, but I think there is no difference in respect of qualified dividends taxation.]  

Almost all of the Trust income is from qualified dividends.  The Schedule G worksheet (line 23) clearly shows the smaller of the tax using capital gains rates (line 21:  $1,608) [return as filed] vs the tax calculated applying trust rates (line 22:  $2,634) [per IRS Notice].  In my mind the TT calculated tax due is correct. 

It appears the IRS Notice may have not given cognizance to the preferential treatment of qualified dividends.   As such, I’ve reached out to the IRS.  Thank you for your guidance, my initial question has been addressed.

One final question.  In my manual calculation of the Tax per the 2023 Tax Rate Schedule (for Trusts) I can’t reconcile to the $2,634 figure.  I’ve been looking at this since last night, since both TT (and the IRS) have this number, it’s unsettling that I can’t seem to get there.   It must be something obvious, what am I missing?    

Income	Rate	Tax
12,001
2,900	10%	290
9,101	24%	2,184
Total	(my calculation)	2,474
	vs TT calculation	2,634
	Difference to explain	160

Thanks for reading this.  I really appreciate your insight, time and assistance.

Sincerely,

[tagteam · Accepted solution]

@B Parker 

The tax would be $2,126 + 35% of the amount over $10.550. 

So, that would be $2,126 + ($12.001 - $10,550 = $1,451 x 35% = $507.85 [round up to $508).

In short, $2,126 + $508 = $2,634 so the calculation is correct. 

[tagteam]

I have no idea what the IRS did with their calculations but it appears to be in error based on your worksheet. 

You'll have to take that up with them (as you are apparently in the process of doing).

[B Parker]

Thank you.   Obviously I can’t read a tax table.  Appreciate the illustration of proper calc.  

Sincerely,