Summary: TurboTax said we didn't need to file a the 1099-Q we received from Fidelity, but the IRS now says we owe taxes on the Earning portion of the 529 plan distribution. Advice on how to resolve?
My non-dependent son paid tuition to the community college which we reimbursed later from our 529 Plan through Fidelity. My son files his own tax return and is not listed on our return. His school did provide a 1098-T to him covering the distributed amount.
Fidelity provided a 1099-Q with Box 6 checked ("If this box is checked, the recipient is not the designated beneficiary") to my wife (the owner of the QTP/529 Plan). The actual beneficiary's name/info (our son) is not mentioned on the 1099-Q form.
Going through the TurboTax 2020 questions step-by-step:
Q: Were you the beneficiary of a Coverdell Education Savings Account (ESA)? No
Q: Did you receive a Form 1099-Q for distributions from a Coverdell ESA or a qualified tuition program (QTP)? Yes
Q: Who's shown on as the Recipient on your 1099-Q? Someone else not listed here
Q: Who's the student? Someone else not listed here
Great news! You don't need to report this form
As advised, we filed our 2020 taxes without the 1099-Q.
Now the IRS has written us claiming we did not report the Earnings portion of the 1099-Q (line 2) and we owe taxes on those earnings. The 1099-Q has box 6 checked showing that my wife was not the beneficiary of the distribution, and the true beneficiary name/info (our son) is also not listed on the 1099-Q.
I need to resolve this with the IRS and I feel like the same situation will happen with my 2021 tax return as we filed the same way this last year.
