Stumped on an IRS Notice received on 1099-R

Technical topics regarding tax preparation.
#1
tax_nyc  
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Hi Taxpros,

I'm stumped.

My friend took a distribution from her IRA (i'm assuming Traditional) and rolled it into a 403b plan at work. The 1099 R was included on her return with an amount on line 15a and taxable amount of "0". The word "rollover" was noted on that line on Form 1040 as well.

She just received a letter from the IRS saying that she owes taxes/int/penalties on the distribution. I'm waiting to see the actual 1099 R but looking at the pdf return - it had a distribution code of G which is trustee to trustee transfer.

She filed this in Turbo Tax and to me it seems like she did it correctly - any reason why is she getting this letter?

I was going to write a letter to the IRS but I'm not sure if I'm missing something.

Thanks!
 

#2
HowardS  
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I'm waiting to see the actual 1099 R

Bingo. You'll need that to proceed.
Retired, no salvage value.
 

#3
tax_nyc  
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So i got a hold of the 1099R and it is a distribution code G and none of the distributions are taxable. The IRS letter is saying that they want a Form 5498. I called both institutions and both companies are saying the other company should issue a form 5498 so i'm getting the run around.

Should I write a letter in response to the notice and include 1099R from the IRA and confirmation from the 403b or is there something else i should include?
 

#4
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This happened to me twice this year. BOTH times, I sent a copy of the rollover contribution entering the rollover Ira and stating that I, as a CPA reviewed all paperwork and that the transaction is not taxable. it worked both times.
 

#5
tax_nyc  
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southparkcpa wrote:This happened to me twice this year. BOTH times, I sent a copy of the rollover contribution entering the rollover Ira and stating that I, as a CPA reviewed all paperwork and that the transaction is not taxable. it worked both times.


So I will send out the letter - Thank you!
 

#6
EZTAX  
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I had a client come in today with the same issue. Self-prepared, turbo tax, I figured I would see what she did wrong quickly. Reviewed the 1099R's, the 1040 and the IRS letter. IRS mistake. Both 1099R's clearly marked as rollovers, shown on the 1040 labeled "rollover" with zero taxable.

Agree with previous comment - just send them a copy of the 1099R's that are coded as rollovers and hopefully call it a day.
 

#7
tax_nyc  
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EZTAX wrote:I had a client come in today with the same issue. Self-prepared, turbo tax, I figured I would see what she did wrong quickly. Reviewed the 1099R's, the 1040 and the IRS letter. IRS mistake. Both 1099R's clearly marked as rollovers, shown on the 1040 labeled "rollover" with zero taxable.

Agree with previous comment - just send them a copy of the 1099R's that are coded as rollovers and hopefully call it a day.


i charged her (a friend) 125 for that is that reasonable?
 

#8
Skatter  
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Isn't the "rollover" flag/notation on line 15 to be used only when it isn't a "direct rollover"? In the OP scenario--a direct rollover with a box 7 code "G"--I would not have flagged the transaction as a "rollover." Might having done so triggered the IRS Notice?

A different but maybe related issue: I have a number of clients over 70.5 who make QCDs and many of them (20%+) have received notices (CP-2000s) proposing additional tax on the QCD amount. I did properly flag the e-file to show "QCD" but that didn't preclude the Notice. But in all such cases so far a phone call to the Andover office took care of the proposed assessment without having to write a letter or provide docs.
 

#9
makbo  
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Skatter wrote:Isn't the "rollover" flag/notation on line 15 to be used only when it isn't a "direct rollover"? In the OP scenario--a direct rollover with a box 7 code "G"--I would not have flagged the transaction as a "rollover."

Answer to your question: no, the "rollover" notation is to be used whenever there is a rollover reported on a Form 1099-R. Maybe you would not have flagged the transaction as a "rollover", but I bet your software would have, and it would be following the form instructions.

However, it is true that for some transfers, no 1099-R is to be issued, in which case it would not be shown on Line 15 Form 1040 at all, without any action from you.
 

#10
makbo  
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tax_nyc wrote:i charged her (a friend) 125 for that is that reasonable?

Did you tell her she could simply use the IRS return envelope provided, check a few boxes and sign the IRS letter, and mail it back herself?

Seeing as this person was not your prior client, that fee is probably reasonable for responding to the IRS notice. For a return I prepared, for a client I wanted to keep, I would not normally charge the client for something simple like this, even though it wasn't my fault.
 

#11
Skatter  
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makbo wrote: Maybe you would not have flagged the transaction as a "rollover", but I bet your software would have, and it would be following the form instructions.


It depends. Given a 1099-R with a box 7 code of "G" and the IRA box checked, I can get the "rollover" flag to show on the 1040 line 15 only if I open the drop-down options (there are just two of them) under a separate rollover input and select the one that says the proceeds went into the same type of account.
 

#12
novacpa  
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I got one of these too, CP 2000 Notice (tax year 2016) - proposing additional tax & penalty ($11,000) for a 1099-R "G" code in box 7 where box 2a "taxable amount" = $-0-.
I'm guessing - many Taxpayers do not report this income as "retirement income" on line 15a IRA Distributions then 0 (or blank) - perhaps thinking it's not taxable, why report it?
When I prepared the return I did declare the income ($32k) (line 15a) entered code G (box 7) "direct rollover into a qualified plan" and described the distribution - gross amount and taxable amount $-0-.
16-months later - the "Service" send the CP Notice - proposing they pay $11k.
Now we have 30-days to protest the "proposed addition".
 

#13
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Form 5498 is prepared by an IRA custodian. One of the lines on Form 5498 is for "rollover contributions". This is what the IRS is expecting to see. However, the 403(b) custodian is not an IRA and does not prepare a 5498. This is probably the reason the computer thinks there is a mismatch.

The taxpayer should have a monthly, quarterly, or annual statement from the custodian showing the activity in the account. Somewhere in one of these statements there should be a deposit saying "rollover contribution" or something like that. Even if it just says "contribution" or "deposit" the amount should match the 1099-R. Send a copy of that statement with the CP2000 response form ("I do not agree" checked) to the IRS, and it should go away in 60-90 days.

Remember, when the IRS receives the response to the CP2000, that is the first time there is any human involvement on the IRS end. I suspect that if you just sent the response form with "I do not agree" checked, without any explanation or accompanying documents, that might be enough for the human at the other end to correct the account. I don't actually recommend this approach, of course! :D
 


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