Is a direct rollover from a 401K to an IRA taxable?

[reagan3]

I am amending my return, which showed a refund because I found a missing 1099-R. The 1099-R is for a direct rollover from my 401K to my investment IRA. On the form, box 7 has a "G" in it, and box 2a says $0 for taxable amount. However, when I finish amending my return, my refund disappears. I hesitate to do anything, now, because it shouldn't have effected my refund. Can anyone tell me what's going on?

[dmertz]

The direct rollover from the 401(k) to a traditional IRA is not taxable.  You can see this by seeing that everything in column B of Form 10401-X is zero.

Any refund or balance due shown when you prepare Form 1040-X is in addition to what was shown on your original return.  The refund shown on your original return is still paid.

The only reason to file Form 1040-X under this situation is to provide explanation that the rollover was actually completed and that it results in no change in tax liability.  Had you included it on your original tax return the only effect would have been to have included it on Form 1040 line 5a, exclude it from line 5b and include the word ROLLOVER next to line 5b.

[fanfare]

@reagan3 

Do not file an amended tax return for this situation.

IRS knows what code "G" means.

Meanwhile, If any dollar amounts on form 1040-X changed due to your amendment, you did not enter it correctly.

[Critter-3]

DO file the 1040X to report the missing 1099-R even if it has a G in box 7  or be prepared to answer an IRS letter in about 2 years about the missing entry.  So deal with it now easily or have a headache later. 

[fanfare]

The only supporting document is the revised 1040.

You're not supposed to attach 1040 to 1040-X because 1040-X becomes your new tax return.

when filing 1040-X and no dollar amounts are changing, leave lines 1-23 EMPTY.

@Critter-3 

So you're saying IRS does not know what Code G is on their copy of the 1099-R ?

[Critter-3]

@fanfare 

What I am saying is the stupid IRS  computer will auto generate a CP2000 for the "missing income" in a couple of years ... so filing a 1040X now with the explanation of adding the missing 1099-R now is the correct move to make to avoid a PITA letter later.  Nothing will change on the 1040X except the explanation on page 2 and the addition of the 1099-R to the efiled return (or attach a copy of the 1099-R with the mailed in 1040X).   Like I said ... deal with it now while the 1040X can be easily efiled (and you don't need to hold your breath waiting for the CP2000 to show up)   or deal with it later when the IRS notice arrives.

[dmertz]

When the IRS system detects the unreported amount, the tax return is kicked out to an examiner.  In this case a smart examiner might observe that the IRA custodian issued a Form 5498 reporting receipt a rollover of the same amount and close the examination.  A less savvy examiner, in the absence of a previously provided explanation, would issue a CP2000 that would require a response indicating that the rollover was indeed completed.

[Critter-3]

Actually there are  NO  humans involved with a CP2000 letter ... it is all automated ... generated and issued by the computer alone due to the understaffing at the IRS ... trust me I have seen quite a few over my 30 years.  A human only comes into the picture when you respond to the letter to explain why it was missed and true a good auditor would dismiss this issue but why wait and deal with the letter issue latter when it is easily corrected now.  

[fanfare]

@reagan3 

The refund on an amended return that changes nothing is zero.