Hi guys, I hope you can help me make sense of this and choose the best path to resolution!
In 2020 my wife and I filed separately, as it seemed to reduce the total tax burden. My wife had a tax bill (~$2.9k) and paid in full. I had a refund ($2.8k) and was paid. So we had both settled up for the year.
At the time I was unaware this invalidated my Roth IRA contribution for the year ($6k). I realized this mistake and filed an amended return to merge into a MFJ and solve the IRA issue. All our inputs stayed the same, and we were both on standard deductions. Turbo Tax said that we should receive an additional $754 refund.
They took almost 10 months to process this and finally sent a letter saying that we owed an additional ~$2k + penalties. I went back and forth with them trying to understand the source of this bill. They claimed that we didn't file a form for the child tax credit, so that was removed (which was untrue). Then, they closed the case without looking into it further or giving a correct reason.
I got referred to a taxpayer advocate, who sent a letter closing the case without ever speaking to me, claiming that the issue was that we didn't report my original refund amount and that is why we owed money.
My whole argument is that since we both individually settled our 2020 taxes, the only way that any money is owed in either direction is if our total tax liability changed by switching filing status. So, I poured over all the numbers and believe that I finally found the source of the change:
When covid hit in 2020, my employer was able to stay open, but my hours got cut back. Some of this reduction in work was covered by unemployment benefits. On my individual return (Sched 1, line 8), there is a UCE credit for $10,200, that is not found on the joint return. Looking into the eligibility requirements for that exclusion, our combined AGI crossed the $150k threshold, and made me ineligible.
So, unless I am missing another option, I either need to pay the back taxes and penalties on that $10,200, or amend the return back to MFS and deal with fixing the ineligible Roth contribution.
Any advice much appreciated!
