Client is permanently disabled and no longer works. They had a disability policy at their former employer which was paid entirely by the employer. Client has a social security reimbursement agreement with the insurer.
In 2018 client received $12,588 from disability insurer Metlife. They received $27,084 from social security administration for long term disability. Their agreement with Metlife required them to remit a portion of the social security income to them in the amount of $6,616. This has been going on for several years.
When I filed this in 2019, we claimed an IRC 1341 claim of right credit on schedule 5 for $907. Internal Revenue Service has rejected this claim with an explanation that the IRC 1341 credit must be for income which has been claimed in a prior year.
I want to propose an amendment with IRS to claim the social security income and the repayment to the insurer as a net item on line 5a but cannot find any instruction that this method is acceptable. The alternative to claim the repayment on schedule A is also not instructed anywhere as far as I can find. Additionally this method wouldn't work for them because they no longer itemize deductions with the increased standard deduction for seniors instituted in 2018.
Help would be much appreciated. Thank you.