1099-Q earning in TaxAct

[Ross]

A new client in 2008 had a 1099-Q with earnings of $790 in box two. It also had a check in box 6 (the recipient is not the designated beneficiary). I put everything in my Taxact software just like it was on the 1099-Q, including the check in box 6. I also entered that the education expenses equal to the gross distribution. The $790 in box two did not show up on line 21 of the client's 1040. Of course I ran the audits with my software and did not receive any warnings, etc.

Last month the client got a CP2000 notice from the IRS. It said that the $790 is taxable. I assume this is due to the parent receiving the 1099-Q in their name and not in their son's name. Thus, the parent is not the designated recipient. Being that I input the 1099-Q correctly, it seems that it would have carried the $790 to line 21. Is this a problem w/ TaxAct? I assume the $790 is taxable?

[Chief]

Ross

One of the reasons we need to check our software. This is true of Sch K where the interest is not carried over to Sch B but has to be entered.

[FEDUKE404]

Generally withdrawals are tax exempt

IIRC, anything from a 1099-Q defaults to "taxable" unless you put in something to show the withdrawal amount went to a proper destination. Or are you saying the funds were withdrawn (prematurely) so there should have been a taxable event???

I thought all 1099-Qs showed the student's (beneficiary's) name/SSN on the document?

FWIW: TaxAct currently has a huge worksheet on the 1099-Q data entry page. There is also a separate Coverdell distribution/basis worksheet. There are many places where you might take a wrong turn.... (I think the "software" is quite OK)

FE

[Ross]

The funds were not withdrawn prematurely. The 1099-Q only showed the parent's SS# and name. I imagine the software is OK, just not sure where I went wrong.

[FEDUKE404]

Very strange

The funds were not withdrawn prematurely. The 1099-Q only showed the parent's SS# and name. I imagine the software is OK, just not sure where I went wrong.

Several years ago I had Cloverdell ("education IRA") withdrawals for each of my two offspring.

Both of the Forms 1099-Q had their own name/SSN on the document, although my name did appear on the account statements. I do recall having to enter a number showing how much of the funds were spent for qualifying expenses so as to make the "income" (where did THAT come from ?!?) go away.

And at the time I was using TaxAct. Nothing ever was shown on my personal tax return, but was on both of theirs. So far the IRS has been quiet, and the three-year window has also passed.

Alas....

FE