I just talked to online TT help and got an answer to a question that I am not sure is correct regarding enter a cost basis for a 1099R

[bfordmn]

I am using TT Premier desktop.  I received a 1099R with a gross distribution of around $35K.  We started the annuity in about 2000 with an initial investment of $10K.  We are closing the annuity, which triggered a total distribution.  The annuity was sold to a new company and, apparently, the basis was lost, so the 1099R does not list a taxable amount  and both boxes on line 2b are checked (Taxable amount not determined and Total Distribution).

I was looking for a way, after entering all of the information from the 1099R into TT, to apply the known basis of $10K, so the taxable amount would be about $25K, not $35K.  After talking to several help specialists (well up the help ladder), the recommendation was to edit the values entered from the 1099R to reflect the correct taxable amount, even though TT on the 1099R entry page states, "Enter the information exactly it appears on the 1099-R".  The "exact" is bolded on the TT page. I was instructed to add a Taxable amount on Line 2a and uncheck the box on Line 2b for Taxable amount not determined.  This was the recommendation, because apparently, the software cannot apply a known basis to a gross distribution.

Does this make sense to anyone?

[dmertz]

In the CD/download version of TurboTax (but not the online version of TurboTax where the implementation with respect to this situation is deficient) you can indicate, when asked, that a different amount than the amount in box 2a is taxable.  The CD/download version of TurboTax will then allow you to select the General Rule (which is the correct selection for a nonqualified annuity established in 2000) and then enter the actual taxable amount of around $25k in this case.  The CD/download version of TurboTax then just stuffs the actual taxable amount into box 2a of TurboTax's 1099-R form with no other modifications to the form.

The recommendation that you got replicates this behavior, but that there is no need to unmark box 2b Taxable amount not determined.  I would leave that marked as long as you see the correct taxable amount included on Form 1040 line 5b.

[bfordmn]

Thank you for your help.  Although I would rather not see the form altered, this may be the only solution.  I had just discovered this route (as you described it), but I did not understand the nature of the "General Rule" and was discouraged to see that the outcome was, as you stated, a value was "stuffed" into Box 2a, effectively altering the value shown on the original 1099-R.

Are you confident the IRS will not have an issue with the input not matching the form or do they get some supporting worksheet in the eFile that clarifies why the inputted value does not match the form?

Thanks again!

[dmertz]

There are several scenarios where TurboTax puts the user-provided taxable amount into an otherwise blank box 2a when box 2b Taxable amount not determined is marked.  If the form shows no tax withholding, the e-filed tax return does not include the user-entered details of the form, so the IRS will be unaware of the change to box 2a.  If there is tax withholding in box 4, the details are included in the e-filing, but I haven't seen any posts that suggest that the IRS looks at anything other than the amount in box 4.  Still, whenever the taxable amount is user-supplied, be prepared with documentation to support the user-supplied taxable amount in case the IRS questions it.