I am having an issue with my self-directed brokerage firm. When the brokerage paid an inherited IRA distribution (full liquidation), they made a processing error and made the distribution twice including sending tax withholdings to the state and federal tax authorities twice which overdrew the account by the amount of the gross distribution. I received net payments twice. I sent back the second net payment but they were unable to get the tax authorities to refund the excess withholdings, so the account is still overdrawn by the amount of the second set of tax withholding payments which they are asking me to pay back. Unfortunately, they added the duplicate tax withholding payment to the gross and taxable distribution on my 1099-R and won't correct it to reflect the correct taxable distribution.
If they reflected had distributed correctly, the withholdings would have covered the tax liability and I would have paid no taxes. If they reported the correct distribution amount on the 1099-R, I would get refunded the exact amount of the overdrawn account and would be happy to pay back. But grossing up the distribution by the excess tax amount paid causes me to come up short on my refund to address the overdraft.
I have tried to resolve with the company and had the IRS send a letter, but they won't make the change. Do I just submit the supporting documentation along with Form 4852 or are there other recommendations?
