Former HSA company sent duplicate totals to IRS, but we only had one account. What proof do we need to send to IRS to resolve?

[DAM11]

My company transitioned HSA providers.  The prior provider submitted two accounts, with the same totals, to the IRS and I recently received a letter noting that I did not include the second account total on my return.  I have double-checked the tax forms available from the HSA provider and there is only one form, with the single account that I included on my tax return, available.

How do I prove to the IRS that the HSA company was in error?

Another aspect is that the distributions were used solely for medical purposes, but are being taxed, which is not my understanding of how one can use HSA funds.

[RobertB4444]

It looks like because the provider switched that you had two 1099-SA issued for distributions from your HSA.  You have two options here-

Contact the HSA provider and get them to amend their filing so that the correct amount is reported to the IRS.  This is the best option for you because it is correct and represents what actually happened.

Enter both forms onto your tax return and say that all of the distributions were spent on medical expenses.  That will get your tax return to the correct place, although if you are audited you will only have medical receipts to cover the first withdrawal and you will have to explain the duplication issue to the IRS at that time.

To enter your 1099-SA into TurboTax go to the 'Wages and Income' section of your federal return and scroll down to 'Less Common Income' towards the bottom.  The first entry in that section is the 1099-SA so click start next to that and enter all of the information from your form.  The first question after that will be 'Did you spend all of this money on qualified medical expenses?'  If you answer 'Yes' to that then all of the distributions are not taxed.

@DAM11 

[DAM11]

Thank you.  I will reach out to the HSA company, but as with many companies, their support is minimal.

This occurred on our 2022 return and I did mark the original amount as used for medical expenses, but it appears that the IRS still treated it as taxable, per the letter on the discrepancy I received.

[BillM223]

So you received a letter from the IRS, what we call a "letter audit". This is good, because it gives you a chance to explain to the IRS what happened AND the IRS employees in the office you are talking to have the power to fix the situation.

So the IRS letter says that you have two HSAs and you did not disclose the second one. In the forms provided by the HSA custodian, was there an account number? If so, was it the same account number for "both" accounts? If so, point this out in your response to the IRS that this is "proof" of duplicate HSA accounts, because the HSA custodian obviously sent the IRS duplicates records, what with the same account numbers and identical numbers for contributions and distributions.

And where do you see that your distributions are taxable? Was this part of the records that the HSA custodian sent to the IRS? Dispute this, but emphasize that the records from the HSA custodian are in error. This should help your argument with the IRS that that custodian's records are all fouled up.

[DAM11]

There are two separate accounts from the same HSA provider, and the same exact distribution amount.

Based on the updated tax calculation from the IRS, they are taxing the distribution from the HSA.

[RobertB4444]

It sounds like the IRS has disallowed your medical deduction until you prove that it was correct.  You may be best served here by sitting down with a tax professional in your area to respond to this IRS notice.  

But do keep working on getting a correction from the HSA.

@DAM11 

[Mike9241]

There are two accounts but the distribution can only have come from one account or the other. Each of the 1099-SAs should only reflect what came out of that account.