IRA basis improperly modified when entered IRA 1099-R amount is all transferred to charity

[luvpismo]

At start, I imported TurboTax 2021 data that included 2021 traditional IRA basis that I had tracked for years. Later, I entered my only 2022 IRA 1099-R and specified that I had all the distribution transferred to charity. When I returned to the "2022 Income Summary" page I looked at the IRA Information Worksheet and saw in Part I, Line 3, my basis carryover for 2022 had been incorrectly reduced by the 1099-R amount. To work around this problem, I updated the newly entered 1099-R and specified none of the distribution was transferred to charity and entered the 12/31/22 value of my traditional IRA when prompted. I then updated the 1099-R a second time and specified that I had all the distribution transferred to charity. Part I, line 3 on the worksheet then reflected the correct basis carryover.

[hbl3973]

luvpismo,

Yes, you are of course correct that QCDs do not change the IRA basis.  ( https://obliviousinvestor.com/qualified-charitable-distributions-from-an-ira-with-basis/ )  I will alert the TurboTax folks to the issue in case it is in the current year offering.  Do look at your 2021 return and see what TT did on form 8606.  I suspect it subtracted the QCD from your basis on that form.  If that was the case, you had best amend the 2021 return to correct it.

[dmertz]

[Deleted]

[dmertz]

I reported this problem in 2017 with regard to 2016 TurboTax and it was never addressed.   For some inexplicable reason, if no Form 8606 Part I is required to be filed, TurboTax reduces your carryforward basis to your basis minus your QCD or the year-end value that you have entered for your traditional IRAs.  In 2017 I submitted test file Token 378590 demonstrating the QCD/basis problem.

In the absence of a Form 8606 needing to be filed, a workaround might be to enter a traditional IRA value that is more than your basis whether or not you enter your traditional IRA year-end value.  In this case, this would need to be done in your 2021 tax file before transferring in to start your 2022 tax return.

Even worse, if you have a similar situation but the distribution is instead an HSA Funding Distribution, TurboTax loses ALL of your basis.  In 2017 I submitted test file Token 378589 demonstrating the HFD/basis problem.

It's clear that TurboTax Product Qualify has chosen to ignore these problems.

It might be that all you need to do is correct the basis directly on TurboTax's IRA Information Worksheet (accessible only in the CD/download version of TurboTax).

[luvpismo]

dmertz, Thank you for your feedback and suggested workaround. It's sad the problem has not been fixed since you reported it in 2017. If a user does not realize the IRA basis has been incorrectly reduced by TurboTax, then the amount by which the QCD reduces the already taxed basis will be improperly taxed a second time in the future. If not fixed, I will have had to deal with this problem not only this year, but next year as well.

[DawnC]

I would like to take a deeper look at this.  However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed.  You can send one to us by following the  directions below (I'm assuming you are using the desktop product):

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent”
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number that was generated in the response.  

Thank you @luvpismo 

[luvpismo]

Hello DawnC, Token #1070031 This represents a test return that demonstrates the problem with handling QCDs. The return consists of a single 1099-R income item and the Line 1 amount of the 1099-R is 100% QCDs. Looking at the IRA Information Worksheet Part I, Line 1 has the correct 12/31/2021 imported basis carryover amount but Line 3 has been incorrectly reduced by the total 1099-R Line 1 QCD amount. On the worksheet, Line 3 had previously matched Line 1 after import. Oddly, if one overrides the empty worksheet year-end value field on Line 2 and enters any amount greater than Line 1, then Line 3 is immediately corrected to match Line 1. Thank you

[dmertz]

This is the same behavior I provided in the bug report I made in 2017 using 2016 TurboTax to produce a test file virtually identical to the one luvpismo has uploaded.

Perhaps my original report was ignored because the problem wasn't affecting me personally.  I just observed the bug when testing something else.  I thought it was quite significant because I suspect that a majority of those affected never notice the inappropriate reduction in their basis.

[DawnC]

Thank you for providing the token @luvpismo.   The issue (basis being reduced for a QCD) has been identified and will be corrected in an upcoming release!