I received a tax notice from Maryland on my 2022 return, denying part of my Pension Exclusion and requesting payment of back taxes and interest. The chunk they are denying is a Roth conversion within a qualified 401K plan. That is, the money was converted from pretax 401K to 401K Roth, and stayed in the plan. Federal taxes were paid on the full amount of the conversion (in Turbotax, this is triggered by selecting "Yes, this money rolled over to a designated Roth 401K account"), but on my Maryland return, Turbotax applied the conversion to my Pension Exclusion, up to its maximum amount. The 1099-R for the conversion had a G (direct rollover) in Box 7. I was over 65 but not collecting SS in 2022.
After several calls going over my return with Intuit, I was told to file a claim against the TT 100% Accuracy guarantee, which I did but doesn't bode well for me even assuming they accept it and pay the interest. I guess I am still a little skeptical, I have done a lot of internet searches and reviewed all the instructions for MD forms 502R and the 502 pension exclusion worksheet (13A), and have not found anything that conclusively addresses this one way or the other. Does anyone have any insight on this? If so can you point me to any reference, such as MD tax code section/paragraph, MD form instructions, webpage, etc?