Charitable gift annuities software error

[William Baldwin]

It appears there is an error in how TurboTax handles 1099R forms marked F in box 7. The software should carry over a portion of the distribution to line 43 of the 1099R summary and from there to Form 8960 line 3. The explanation on the 1099R summary is that the carry-over occurs only if box 7 is D. It should carry over for both D and F distributions. Non-qualified annuities are clearly subject to the NIIT.

[DaveF1006]

You’re right—income from a non-qualified annuity is subject to the Net Investment Income Tax (NIIT) under Section 1411. However, TurboTax handles Code D and Code F differently because of how the IRS defines each code.

1. Code D (Non-qualified Annuity): This code explicitly tells the IRS (and the software) that the distribution is from a commercial non-qualified annuity. These are the "textbook" examples of income that must flow to Form 8960, Line 3.
2. Code F (Charitable Gift Annuity): This code is more complex. A Charitable Gift Annuity (CGA) distribution is often split into three parts:

• Tax-free return of basis.
• Capital gains (taxed at lower rates).
• Ordinary income.

Since Code F includes different types of income, the software doesn’t automatically map the full taxable amount to the NIIT form. This helps avoid over-taxing any part that could be excluded. 

If TurboTax is not automatically carrying your Code F distribution to Form 8960, you will need to manually "tell" the software that this specific income is investment-related.

1. The "Investment Income" Interview

1. Instead of trying to fix it on the 1099-R entry screen, navigate to the Net Investment Income Tax section:
2. Go to Federal > Other Tax Situations.
3. Find Net Investment Income Tax (Form 8960).
4. As you go through the interview, look for a screen that asks about "Annuities from non-qualified plans" or "Other investment income."
5. You can manually enter the taxable portion of your Code F distribution here. This will force it onto Form 8960, Line 3.

2. Forms Mode (Desktop Only)

If you are using the CD/Download version, you can fix this in seconds:

1. Switch to Forms Mode (top right).
2. Open Form 8960.
3. Find Line 3 (Annuities).
4. If the field is calculated (yellow), you may need to find the Form 8960 Worksheet or the 1099-R Summary Worksheet.
5. On the 1099-R Summary, look for the row corresponding to your Code F form. There is usually a checkbox or a column for "Subject to NIIT"—check that box, and it will flow to the 8960.

If your Modified Adjusted Gross Income (MAGI) is over the threshold ($200k Single / $250k Joint), missing this entry could technically result in underpaying your tax by 3.8% of that distribution. While it’s rare for the IRS to send a letter asking you to pay more NIIT, correcting it now ensures your return is technically perfect.