Another Crazy Situation

[Terry D EA]

Client is totally disabled and confined to a wheelchair and cannot perform any normal functions to earn any type of income and is 58 years old. Only income is early distributions from an IRA. H&R prepared their 2019 return which is under examination. H&R put the gross distribution from the 1099R on line 7 of the 1040 labeled income from 1099R. I believe they did this to avoid the early withdrawal penalty instead of filing the 5329 with code 3 as the exception.  To me that was crazy and they need to absorb any penalties and interest. Has anyone done this the way H & R did? I don't even think it is proper at all. The IRS has added the 1099R as additional taxable retirement income and sent the CP2000. Bad news, client got scared and ignored the letters and has recently refused delivery of a certified letter from the IRS which I am assuming is the 90 day letter. Now, I'm on board to help. My opinion is to amend the 2019 return to include the 5329 so the return is accurate. Client signed 2848 so I'll try to get a status of the account and inquire as to where the IRS is in the collection process. Because the client refused to accept and sign the certified letter, are their rights to petition tax court still available or is the clock still running on the 90 days? Wrong time of the year for this, but.....

[DANRVAN]

2 hours ago, Terry D EA said:

2019 return which is under examination.

 

2 hours ago, Terry D EA said:

The IRS has added the 1099R as additional taxable retirement income and sent the CP2000. Bad news, client got scared and ignored the letters and has recently refused delivery of a certified letter from the IRS which I am assuming is the 90 day letter. Now, I'm on board to help.

Kind of hard to tie this all together.  He received a CP2000 and then under examination (audit)?

If under audit should have received a 30 day letter before the 90 day letter.

2 hours ago, Terry D EA said:

Because the client refused to accept and sign the certified letter, are their rights to petition tax court still available or is the clock still running on the 90 days?

Should still be good if in fact a 90 day letter and clock is still ticking.

 

[joanmcq]

Did Block maybe file the IRA distribution with a code 3 for disability and check the box that he is under normal age of retirement? Then it does go to line 7.

[BulldogTom]

Talk to the IRS before you send in an amended return.   I find that they do not want another return filed while they are looking at a return.  If you get them on the phone, they will usually tell you what they want and make the changes from their end and send a letter letting you know what the change is and the amount due or refund coming.

If the 90 day clock is actually running, do not ignore it, even if you are working with the IRS on the return.   When the clock runs out it is too bad.

Tom
Longview, TX

[Pacun]

9 hours ago, joanmcq said:

Did Block maybe file the IRA distribution with a code 3 for disability and check the box that he is under normal age of retirement? Then it does go to line 7.

If H and R was correct, the situation is harder since letters have been ignore.  There is nothing to amend and time is against client as mentioned by others. Unless, he still has to pay penalty even if reported on line 7, in which case an amended return is in order.

[kathyc2]

If I'm understanding you, the net tax on the original return was correct, but the IRS is looking to access the 10% early withdrawal penalty?  

If so, I'd contact the PPL and see if sending documentation that she was deemed disabled before the date of withdrawal would close the matter. 

[Terry D EA]

All good responses. Thank you!

[Abby Normal]

Does the series of substantially equal distributions exception to the 10% penalty apply here?

[joanmcq]

And look to see how the 1099 is coded. 

[Terry D EA]

On 4/2/2022 at 2:02 AM, joanmcq said:

And look to see how the 1099 is coded. 

The 1099 is coded code 1. The issuing company stated they no longer use code 2 or 3 and the taxpayer is directed to indicate the exception on the 5329.

[Terry D EA]

On 4/1/2022 at 8:18 PM, Abby Normal said:

Does the series of substantially equal distributions exception to the 10% penalty apply here?

Could, should maybe!! I'm looking into that. The main thing is the client is totally disabled and confined to a wheelchair and cannot work. Hence the reason for the distributions. Just a little SS income.

[schirallicpa]

love how these companies can't be bothered to put the codes in  - leave it to the tax preparer.