IRS probs. My return appears to have an incorrect calculation with AGI. Entered $160,300 for IRA disbursement (under 55 y/o). TT calculated only $97,300 taxable/AGI. Why?

[dmertz]

Please answer all six of the following questions:

What is the code in box 7 of the Form 1099-R provided by the payer?

Is the IRA/SEP/SIMPLE box marked on this form?

Does this tax return include Form 8606?

On what line of Form 1040 does the $160,300 appear?

On what line of Form 1040 does the $97,300 appear?

Is there any notation next to the line where the $97,300 appears?

[cisaac1031]

Thank you for the prompt reply. I will gather all of the information you asked for and get back to you as soon as possible. 

[cisaac1031]

Hello again,

I will need to locate the Form 1099-R provided by the payer and provide you with this information. Answers to your other questions are as follows, and there is some additional info I found on the return:

• 160,367 appears on line 4a of Form 1040 (total)
• 97,300 appears on line 4b of Form 1040 (taxable)
• There is no note or notation next to line 4b on Form 1040
• No form 8606. However, Form 5329 is attached:
  • line 1 - 60,367
  • line 2 - 35,000
  • line 3 - 25,367
  • line 4 (from SCHEDULE 2 Form 1040) - 2,537

• SCHEDULE 2 (Form 1040) is attached - 
• Part II, line 6 - 2,537 
• Part II, line 10 - 2,537)
• Form 8915-E is also attached (Qualified 2020 Disaster Retirement
  Plan Distributions and Repayments)
• line 2(a) - 160,367
• line 2(b) - 160,367
• line 2(c) - 100,000
• line 4(a) - 160,367
• line 4(b) - 160,367
• line 4(c) - 100,000
• line 5 - 60,367
• line 15 - 100,000
• line 16 - 100,000
• line 17 - 33,333
• line 19 - 33,333

Thank you again. I appreciate your expert assistance!

[fanfare]

If you took a disaster distribution and divided by 3.0 (the default) you will pay less tax now and the rest later.

@cisaac1031 

[fanfare]

$33,333 is one third of $100,000 - the most you can spread.

I recommend you decline the three year spread if you don't need it.

It just puts off the inevitable and gives you possibly three large years instead of one now.

@cisaac1031 

[dmertz]

fanfare explained the reason that only $33,333 of your disaster distribution (perhaps a Coronavirus-Related Distribution) appears on line 4b.

It's a bit odd that the IRS would question that if Form 8915-E was present in your 2020 tax return filing.  Did your tax returns for 2021 and 2022 fail to include $33,333 on a Form 8915-F each year to complete the inclusion of this income over three years?  That would explain the position taken by the IRS that you own taxes on the remaining $66,667 of income.

One other possibility exists if you mailed your tax return.  If so, it's possible that the IRS data transcriber transcribed your Form 8915-E as having the box marked indicating that you wanted to include the entire $100,000 in 2020 despite the box not actually being marked on your Form 8915-E.  Still, it probably would be obvious to an IRS examiner that you were spreading the income over three years based on everything else regarding the Form 8915-E.

[cisaac1031]

@dmertz @fanfare I just want to take a moment to give you a well-deserved and gigantic THANK YOU!!! I just got off the phone with the chief counsel at the IRS (Florida) and he is sending me a NO DEFICIENCY - NO PENALTY letter for my 2020 return. Turns out I did file the correct amounts in 2021 and 2022 (33,333 each). Turbo Tax not only got me the best option  for my IRA cash out (I did not have much income in 2021 and 2022) but  claimed it properly on the following 2 returns. No idea why the reviewer did not see this.