Problem with reporting IRA rollovers

[NCperson]

do you mean it was a 'direct rollover'?

did you submit your tax return electronically or via paper? 

for EACH 1099 you received, can you please provide

     a) is there a taxable amount in box 2a?

   b) what are the distribution codes in Box 7? 

   c) is there an X in the IRA / SEP  in box 7?

for starters, the sum of the taxable amounts in Box 2a should match 15b 

[dmertz]

caffeyw, yours seems to be a rollover of a traditional IRA to another traditional IRA and it appears that it was reported correctly on your tax return.

Did you mail your tax return rather than e-file?  If so, the data transcriber at the IRS probably failed to transcribe the ROLLOVER notation causing the automated checking system to flag the distribution as a taxable distribution that was not rolled over but not reported as taxable.  If this is what happened, it can be an effort to convince the IRS that the error was on their end.

Another reason that the IRS system might have flagged unreported income is if the receiving custodian treated the movement of the funds as a non-reportable trustee-to-trustee transfer while the original custodian treated it as a reportable distribution and rollover.  Such circumstances would result in the receiving custodian not issuing a Form 5498 reporting receipt of a rollover contribution.  If it was a trustee-to-trustee transfer, the original custodian should not have issued any Form 1099-R.

A third reason that the IRS might flag it is if the rollover was from a traditional IRA to a qualified retirement plan.  Such rollovers require explanation to the IRS because qualified retirement plans have no way to report receipt of rollovers.  As in the case where an original IRA custodian treats it as a distribution but a receiving IRA custodian treats it as a non-reportable trustee transfer, the IRS can treat the distribution as not rolled over if they have received nothing to substantiate that the rollover was completed.

[caffeyw]

It was efiled.  However the IRS is showing that there was no ROLLOVER notation on the return, despite showing on my printed records copy.  

[NCperson]

what matters is what is posted on lines 15a and 15b

for EACH 1098 you received, can you please provide

     a) is there a taxable amount in box 2a?

   b) what are the distribution codes in Box 7? 

   c) is there an X in the IRA / SEP  in box 7?

 the sum of the taxable amounts in Box 2a should match line 15b .  Does it? 

remember that TT will cover any penalties and interest if there is a software issue but you still are responsible for the tax.  However, if there was an input error (which is why I ask you to post the detail above), they will not take responsibility. 

[dmertz]

If all amounts distributed from IRAs were rolled over, the amount on line 15b should be zero.  Line 15b should not be the total of the amounts in box 2a of the Forms 1099-R since a Form 1099-R reporting a regular distribution from a traditional IRA must always have box 2a equal to the amount in box 1 and have box 2b Taxable amount not determined to be marked whether or not the distribution is taxable.  It's impossible for an IRA custodian to determine the actual taxable amount of any regular traditional IRA distribution.

You said that the problem is that the IRS does not agree that the ROLLOVER notation is present for line 15 despite it being present on your printed copy.  Check your tax return transcript for the year downloaded from the IRS to confirm that this is the case.  Check your Wage & Income transcript for the the to see that it includes Form 5498 from this IRA showing the rollover contribution in box 2.  I don't see how it's possible for your e-filed Form 1040 could have line 15b be zero (correct) but not have the ROLLOVER notation (incorrect), so it seems more likely that the IRS is missing the Form 5498 corroborating the rollover.  The only way I can see that your printed copy would be different from what was e-filed is if you changed your entries between the time you filed and the time you printed.

https://www.irs.gov/individuals/get-transcript

[caffeyw]

There is nothing that shows ROLLOVER on the tax transcript.   It simply shows total from 15a and taxable amount from 15b.  

[dmertz]

Very strange.  I can't imagine how such a discrepancy could have been created with e-filing; nobody has reported a TurboTax problem in this regard.  You'll need to respond to the IRS by providing whatever documentation they ask you to provide for them to be satisfied that the distribution was rolled over and nontaxable.

[caffeyw]

I'm planning on just filing an amended return by mail.  While they stated there's no need (they'll amend if you convince them) I think itll be easier, cause then they'll have a return marked ROLLOVER, which seems to be the whole sticking issue.  

FWIW I used desktop version for 2017 taxes, and online for 2018.  My 2018 tax return shows correctly to IRS as ROLLOVER.  It's just my 2017 return.  

[dmertz]

The only issue I see with amending is that Form 1040X generally takes the place of Form 1040 (with Form 1040 being where the normal ROLLOVER indication would otherwise be present) leaving no place other than the explanation area of Form 1040X to indicate that the distribution was rolled over.  It seems that your explanation has already been provided and accepted by the IRS, so it's possible that the amendment would just end up getting rejected because it shows no change to the information that the IRS already has with respect to your tax account.  If things are already in a good state at the IRS, documented by the letter that the IRS sends when a situation is resolved, it may be best to just leave things as they are.

[caffeyw]

It's not hood with IRS. As it's not in their system as ROLLOVER, they see it strictly as unreported taxable income. Their proposed change to the return is to make 15b read same as 15a. Thus taxing the amount and of course adding penalties for underpayment. I already replied to the original letter, indicating that amount was included on return and that it was indicated as ROLLOVER. The agent seems to be ignoring the fact it is a ROLLOVER since ROLLOVER isnt indicated on the 1040 as efiled.

[dmertz]

I misunderstood your previous comment as indicating that the IRS had finally been satisfied that this was a rollover.

I commented on one other case like this on the TurboTax forums several years ago and in that case the person had similar difficulties in getting the IRS to recognize that this was a rollover.  However, in that case I think the loss of the ROLLOVER indication was the result of a date transcription error of a mailed the tax return.  In case like that it does seem that you have to treat what the IRS presently says as what you actually filed and amend to correct the IRS's position.  In this case it might be appropriate to include a copy of the correct Form 1040 along with Form 1040X so that you can highlight the ROLLOVER notation that appears in the left-hand margin next to line 15.  It might not hurt to also include a copy of your Form 5498 showing the rollover contribution to the receiving IRA or an account statement showing deposit into the account of a qualified retirement plan, whichever applies.

Just make sure that the Form 1099-R reporting this distribution actually did have the IRA/SEP/SIMPLE box marked indicating that the distribution was from an IRA and not from a qualified retirement plan like a 401(k) so that it was proper that the distribution and rollover indication is reported on line 15.

[NCperson]

while there appears to be a fixation on the word 'ROLLOVER', what I have been unable to follow in this thread is whether the math on the form was correct - that is what really matters as that math creates the calculation of the tax owed

So was the math correct or not? 

[dmertz]

If there was a proper rollover of an entire gross amount of regular distribution from a traditional IRA to another traditional IRA or to a traditional account in a qualified retirement plan, proper reporting on a 2017 or earlier Form 1040 is to include the gross amount on line 15a, exclude the entire amount from line 15b and include the word ROLLOVER next to the line.  If this is the only IRA distribution being reported on the tax return, line 15b should show $0 taxable under these circumstances.

From the description provided, it appears that the IRS claims that line 15a includes the gross amount, that line 15b excludes the gross amount, but the ROLLOVER notation is not present.  The only cases where TurboTax would allow e-filing a Form 1040 with line 15b excluding the distribution but not having the ROLLOVER notation would be if a zero was mistakenly entered into box 2a of TurboTax's 1099-R form and the IRA Information Worksheet showed an excess traditional IRA contribution of equal or greater amount carried in from the previous year, in which case the filed tax return would also have including an explanation statement that TurboTax would require to be entered, or the tax return included Form 8606 calculating a $0 taxable amount because there was more traditional IRA basis than traditional IRA assets.  There has been no indication that either such an explanation statement or Form 8606 was ever present in the tax return.  Considering those as the only possibilities, the only way that the printed tax return could have the ROLLOVER notation would be if the tax return entries were changed between the time of the e-filing and the time of the printing.  There is no other mention on the TurboTax forum of any occurrences of TurboTax failing to include the ROLLOVER notation in an e-filed tax return when it was actually present in the tax return at the time of e-filing, so it seems reasonable to assume that incorrect transmittal did not happen in this case.

[NCperson]

Thank you for that great explanation. 

I do get concerned when there is just one person identifying a potential software bug and no one else piles on with the same issue .... it points to an input issue and not a software issue, which the TT guarantee does not cover. 

[danardoin]

I have the 2019 deluxe desktop version, I'm entering a 1099R from a traditional ira that I inherited from my dad who passed away in 2019. I rolled the distribution into my own traditional ira but i'm having the same problem this discussion is highlighting. TurboTax will not ask the question what I did with the distribution and treats it as taxable income. There is no way to override this as far as I can tell, I tried.