Audit over Form 8960 Programming Error for 2022

[xtapper]

Hi everyone,

I recently received an audit notice from the IRS regarding my 2022 tax return. The notice states that there was a "programming error" on their end that resulted in an incorrect calculation of my Net Investment Income Tax.

Specifically, the IRS explains that their system failed to include "Schedule C, Line 31 amount" when calculating Line 4a of Form 8960. This led to an inaccurate Net Investment Income Tax on Line 17 of Form 8960, which then affected Schedule 2, Line 12.

As a result of this error, the IRS states that I received an overpayment of $1441.84 in my refund. They are now requesting that I repay this amount. 

My questions are:

1. Has anyone else experienced a similar issue with the IRS Net Investment Income Tax calculation for 2022?
2. Given that the error was on the IRS's side, is it possible to request a refund for the TurboTax software I used for that year? I paid $120 for TURBOTAX DESKTOP HOME AND BUSINESS TAX YEAR 2022 WIN DOWNLOAD WITH STATE.Since the software may have contributed to the incorrect calculation, I think it's reasonable to request a refund.

Screenshot of Form 886-A

[dmertz]

A Google search shows others reporting this calculation error made by the IRS.  Apparently the IRS was including the net profit as a negative amount on Form 8960 line 4b without first including it on line 4a.  Had it been excluded from both lines as was done with tax returns for years prior to 2022, there likely would have been no net error in the calculation of the NIIT.

"Given that the error was on the IRS's side, is it possible to request a refund for the TurboTax software I used for that year?"

I see 2022 TurboTax correctly preparing lines 4a and 4b of Form 8960, so seems that there would be no justification for an accuracy-guarantee claim against TurboTax.  The accuracy guarantee only covers penalty and interest anyway, so if you pay within the time allotted by the IRS there would be nothing to recover.

It appears that the IRS changed the reporting requirements between 2021 and 2022 to include Schedule C profit on line 4b and cancel it out with an entry on line 4b (maybe to be able to treat passively earned  Schedule C profits, which is probably unusual, as investment income), so it's not clear when this got implemented in TurboTax or when the error was corrected in the IRS system.  There is this post about the issue in these forums:

https://ttlc.intuit.com/community/taxes/discussion/form-8960-error-saga/00/2875681

If the IRS originally "corrected" your 2022 refund based on their erroneous calculation, inappropriately increasing your refund, then that is justification for the IRS to ask you to now pay back to the Treasury the amount inappropriately refunded.