Direct rollover from qualifying plan to traditional IRA getting included in taxable income, causing audit for NYS taxes from 2022?

[Opus 17]

What is your question?  A direct rollover is non-taxable if both the source plan and receiving plan qualify.  However, if you got a 1099-R, you must report it on your tax return.  Leaving the 1099-R off your return can trigger an audit because it shows income with no explanation  -- you have to file to put in writing that it was a rollover and not a withdrawal.   Did you get a 1099-R and did you report it?

[LBonge221]

I recently received a letter from NYS saying I was being audited due to an issue with pension/annuity income. After speaking to NYS taxation they informed me that the amount they see is higher than it should be, as only my spouse is retired and receives retirement income and that is when we figured out my direct rollover got counted as taxable income. I then called turbo tax and spoke with an expert who tried to walk me through amending my return, only to discover that everything I entered was done so correctly and I even had box 7 code G selected, indicating it was a direct rollover but the software or something is happening where it continues to add the rollover amounts into me and my spouses taxable income for both federal and state……??? Sorry for the long response but that’s the crux 

[LBonge221]

To add, yes I received 2 different 1099-r forms for the rollovers I did and I also received a form 5498 from my plan administrator reflecting the sums of both rollovers correctly. The only thing I can come up with is the software is mistakenly reporting the rollovers as distributions made to me instead of rollover and increasing my tax implications. Either that or my 1099-R forms need to be corrected. Surely I can’t be the first person to ever use turbo tax and have to report a direct rollover to a traditional IRA from a qualifying plan.

[VolvoGirl]

How did it show up on  your 1040 return?  What plan was it in?  If it was from a 401k or employer plan it should be on 1040 line 5a and not included in  5b with the word Rollover by 5b.  If it was from an IRA it should be on line 4a and not in 4b.  Maybe it showed up on the wrong line so they think you missed reporting it.  

As yes, many people have rollovers, very common.     Even if you did an indirect rollover and you got the money and deposited it into the new IRA  yourself.  That shouldn't cause a problem.  

[LBonge221]

So it showed up on line 5a. Including my husbands retirement distributions as he is retired and receiving distributions and a reoccurring basis but than it has the same number for 5b. Which is the sum of my 2 rollovers and his distributions together and it says PSO for public safety officer since my husband is a retired federal law enforcement and has rollover listed. I just don’t understand why the math isn’t mathing….5b should only have his retirement distributions and shouldn’t include my rollovers, correct? 

[LBonge221]

Also to add these were rollovers from a non-for-profit employer 403b and 401k

[VolvoGirl]

Right.  And the 1099Rs had Code G in box 7?   Could you have entered a 7 in box 7 for a normal distribution?  If it was included in box 5b then you paid tax on it.  Oh  you say it had Rollover by 5b?   I'll page @dmertz  for more help.    When did you file 2022?  If it was early it may have needed an update.   Or maybe you answered something wrong so it thinks you rolled it over to a ROTH IRA?

[LBonge221]

Yes, both of my 1099-R’s had a code G in box 7 and that is how I entered it when I did my taxes. In 2022 I asked for an extension so I filed later in the year. Next to 5b. On the left it says PSO and Rollover and than the amount is the total of my husbands annual distributions and my rollover distributions. I specifically made sure I didn’t answer yes to Roth IRA because this is a traditional IRA and is deferred tax until I retire and start drawing on it. 

[dmertz]

Is the amount in box 2a of the code G Forms 1099-R zero on both the forms provided by the payer and on TurboTax's 1099-R form?  If not (and perhaps has the same amount as is in box 1), the form is reporting a taxable rollover to a Roth IRA or a designated Roth account.  A code-G Form 1099-R for a rollover to a traditional account must always have a zero in box 2a.

You seem to have said that the amount on Form 1040 line 5b is the same as is on line 5a, but I don't see how that could be possible, especially with the PSO notation present.  As far as I know, when an amount on line 5a is present, the amount on line 5b will always be less than the amount on line 5a.

[LBonge221]

To answer your question, Yes on both forms 2a. Is zero. Both rollovers went to the same traditional IRA not a Roth, 5b. continues to have the sum of both rollovers added into it. This is is the problem that I can’t seem to resolve and the turbo tax expert couldn’t understand either. 

[VolvoGirl]

Did you import or manually enter these 1099R forms?  They could have imported wrong.   Did you use the Online version or the Desktop program?  If you used Online you may have to install the 2022 program and download the tax file ending in .tax2022 and open it in the program to see what's going on.  

Save the tax file, see last point under I need my tax data file......
https://ttlc.intuit.com/community/saving/help/how-do-i-save-my-turbotax-online-return-as-a-tax-data-...

[LBonge221]

I manually entered them. I use the online version on my desktop computer, I don’t purchase the software or anything because I only do our individual taxes not anyone else’s. If that answers your question. So even when I go through turbo tax now to try to amend the taxes, I had do download the software from 2022 and even after reentering my 1099r’s, it continues to to put the direct rollover amounts into the 1040 in line 5b. I just don’t get it. Short of filing on paper which I don’t want to do because i feel like it’s not as streamlined,  I’m not sure what other options I have. The way I ended it with the tax expert from Turbo tax yesterday was she was going to continue working on figuring out why this keeps happening and call me today, my only concern with that is right after we hung up I received an email from turbo tax saying my case number for my issue was closed. So I’m not sure why it was closed before a resolution and before I got the callback I was promised

[VolvoGirl]

I opened my  2022 program and entered 25,000 1099R.  I put 0 in box 2a and also tried without the zero.  It came out right on 1040 line 5b as 0 with ROLLOVER to the left.   Did you check either box on 2b taxable amount or total distribution?

Oh, by the way,  maybe you opened the 1099R to view or edit it before you filed?

If you edit or review a 1099R it does not keep your answers from before but resets them to the defaults. Then you have to go through and answer them all again. So be sure to go all the way to the end of the 1099R section. They are right unless you go back.

Another thing to check that's it entered under your name and not your husband's.   If you want you can take a screen shot of the Form 1099R in forms and block out names and amounts, etc.  and post it here.  

Also about line 5.   If the taxable amount on 5b is the same as the gross distribution on 1099R box 1 then it doesn't show the amount on 5a.   5a is not important.   So 5a can be (or should be)  LESS than 5b.  So I'm thinking if you entered them twice  and one was wrong it would show a taxable amount on 5b but not be included in 5a.  Follow?  So it would look like 5b was too much and 5a would still show the right amount.

Did you try starting a new blank test return?  Go up to File-New.  Enter some personal info then enter just your 1099Rs.  

[LBonge221]

The total distribution box is checked on both my rollovers and for taxable amount in box 2a. the amount is “0.00” on both 1099-r’s. I can confirm it does indeed say they are my 1099-r’s and not my husbands. Line 5a is correct with $107,000 which includes the sum of my 2 rollovers and my husband’s distributions he was actively taking, line 5b is incorrect it should be subtracting my 2-rollovers of say $30,000 from the $107,000.00 leaving the taxable amount as $77,000 because that’s the only amount that should be taxable and is the total of my husbands distributions. But instead it’s carrying it right over to line 5b on the 1040 and consequently affecting my state return as well because that’s auto populating the information from the 1040 I think. So I’m getting taxed federally and from state on $30k of money I never received I just rolled over. I did try and amend this return with 2 different turbo tax experts and each time we start in the beginning and go through each section starting from personal and going forward till we get to 1099-R section and have deleted the entries and started brand new and either way it does not change the amounts from what was originally filed. A side by side comparison looks like I made no changes and continues to tax the full amount of distributions. I have also called and am waiting for a call back from the company who issued the 1099R to figure out if something is wrong on the form itself. This issue was escalated on turbo taxes end and I’m waiting to hear back. No one can seem to understand why it’s doing what it’s doing we even (me and TT agent) tried changing things against the 1099-R and it still didn’t make a difference. What gives??? I’m stumped so are they