I had an investment in my IRA with a company that went bankrupt. I subsequently recovered some of that loss through a lawsuit. The law firm that I used deducted their fee from the proceeds and sent me the rest of the money. I deposited all of the money I received back into my IRA along with a letter indicating that the money is to help replace lost principle from the investment. I need assistance with how to enter all of this into TurboTax correctly so that I do not have to pay tax on any of this money. The 1099-MISC that I received shows an amount that represents what I reinvested into my IRA plus the law firm's fees. For the purpose of discussion, let's say the check was for $100,000, and the legal fees were $20,000 which left me with $80,000 to invest back into my IRA. When I entered the 1099-MISC into TurboTax, the running estimate of the taxes I will owe went way up. What do I need to do for TurboTax to properly reflect that I don't owe any taxes on the lawsuit proceeds?
Here are a couple more relevant facts. The amount reported on the 1099-MISC represents a recovery of funds lost in a fraudulent investment within an IRA. The award is a return of capital. No portion of the award includes interest or punitive damages. The law firm was paid on a contingency fee basis. None of the fees were paid out of pocket.