taxable portion of retirement distribution

[tombesser]

I received a CP2000 IRS notice about my 2021 return. In reporting my retirement distributions on my tax form, TurboTax entered a value for the taxable distribution amount that was considerably less than what I had entered from my 1099-R, leaving me liable for a significant late payment plus penalty and fees. I looking at my other years' filings, I found that TurboTax did not do this in 2019, but did it in 2020 and 2022. Perhaps I entered something incorrectly,  but I don't see how. Why would TurboTax think that some of my retirement distribution was not taxable, and especially, why would it do that without explicitly telling me?  

[DoninGA]

Look at your Form 1099-R for tax year 2021.  Is the amount in box 2 of the 1099-R the same amount that is entered on your 2021 federal tax return From 1040 Line 5b for a pension or annuity distribution or on Line 4b for an IRA distribution?

[tombesser]

No, it is different: TurboTax used a different, significantly smaller number in 1040 line 5b. This was true for my 2020, 2021, and 2022  returns.  However, in my 2019 return it entered the correct number.

[DoninGA]

What is the code in box 7 of the 2021 Form 1099-R? 

Is the code in box 7 different on the 2019 Form 1099-R?

I am going to ask one of our experts to respond on this thread, if they are available.

@dmertz Do you know what reason(s) would cause the amount on a Form 1040 Line 5b to be less than the amount reported in box 2 of a Form 1099-R?

[tombesser]

Thank you.

[VolvoGirl]

Were you in a disaster area?  Back on your 2020 return did  you elect to spread the 1099R over 3 years?  So it would be ok for your 2020 return to be lower.  Then  you were suppose to add 1/3 to your 2021 and 2022.  

[tombesser]

Nope, no disasters at all, and I indicated this in the TurboTax process. Thanks.

[Mike9241]

Was this m IRA distribution and did you indicate any portion was a qualified charitable distribution?

then 1040 line 4a would show line 1099-R 2a amount but 4b would be reduced 

[Critter-3]

First the program could be correct ... the IRS could be wrong.

In the interview in the 1099-R section  you had the option to either enter the amount in box 2a yourself or let the program calculate the taxable amount by answering some questions which is probably what you did.  Usually the amount that is listed in box 1 would be the same as box 2A  UNLESS  box 2b is checked.    You would need to review the form 1099-R and what you entered in the program against what was listed on the 1040. 

Turbo Tax is a self prepared return.  It has no way of knowing or checking that you entered something wrong or in the wrong place or entered something twice  Or left something out.  It doesn't check against any outside sources.  The IRS has copies of all the W2s and 1099s your employer and banks/brokers, etc. sent in to match against.  Turbo Tax only checks the calculations of what you entered.   It is your responsibility to check it over before you file.  They only Guarantee that the calculations are right based on the entries you made.

Any calculation errors on the part of TurboTax are covered under the Accurate Calculation Guarantee.  TurboTax will pay any penalties and/or interest due to a calculation error but not any taxes owed.  The Guarantee does not cover any user entry errors or omissions.

See this TurboTax support FAQ for the 100% Accurate Calculation Guarantee - https://ttlc.intuit.com/questions/2566201-what-is-the-turbotax-100-accurate-calculation-guarantee

See this TurboTax support FAQ for submitting a claim - https://ttlc.intuit.com/questions/1901269-how-do-i-submit-a-claim-under-the-turbotax-100-accurate-ca...

[dmertz]

The fact that this was reported on Form 1040 line 5a/b indicates that this is not a distribution form an IRA.  assuming that no part of the distribution was rolled over and that the amount included was less than that amount shown in box 2a of the Form 1099-R, this seems to suggest that you used the Simplified Method to calculate the taxable amount of the distribution.  The Simplified Method only applies when you are receiving regular periodic payments from a pension, you have after-tax basis in the pension and box 2a of the Form 1099-R does not show the correct taxable amount.  Once the Simplified Method is invoked in TurboTax, when TurboTax carries it's 1099-R form over to the next year it will continue to  use the Simplified Method.  this suggests that you might have inappropriately invoked the Simplified Method calculation in 2020.

To remove the Simplified Method calculation you would need to delete the existing 1099-R form from TurboTax and reenter it.

[tombesser]

It is distributions from our 503b retirement program. We indicated no charitable contributions.

[tombesser]

We entered the amount in box 2a when entering the 1099-R form data. No boxes were checked.

[tombesser]

This is the heart of the problem. Yes, TurboTax used the ‘simplified method’ and it is possible that one or more of our interview answers led it to do this. I certainly would have found a way to decline using that method had it said anywhere that it would override the box 2a information!

We have no after-tax basis in the fund, and I would have so indicated had I been asked. 

I will be filing to recover the penalty and interest costs from TurboTax.

[dmertz]

Getting an incorrect result under these circumstances requires making two errors, the first one being telling TurboTax to use the Simplified Method when you should not and the second one misstating your (after-tax) investment in the plan.  If when going thorough the Simplified Method you had correctly indicated a $0 investment in the plan, the calculated result would have been that the entire distribution was taxable and the amount included on Form 1040 line 5b would have been correct.  Because of the way that TurboTax presents the questions, these are not an uncommon errors, particularly because TurboTax does not make it clear that the investment in the plan refers to your after-tax basis in the plan.  You are not alone in this.  Many have posted on this forum who have made the same mistakes.

Unfortunately, this is not a calculation error and Intuit will likely see this as being user error.  The accuracy guarantee does not apply to user errors.