Corona Virus Amended Return - 2020

[Brian EA]

Taxpayer received two 1099Rs from an IRA for distributions taken in 2020 - $7500 & $22,000. The 1099R for the $22,000 was not reported on his return.
He used the $7500 as a down payment for their first home thereby avoiding the 10% penalty.
Two days ago, he faxed me a copy of the 1099R for the $22,000 and asked if he can put it back in the IRA.
Can the tax return be amended to allow him to complete this transaction?
Thanks
Brian

[TaxGuyBill]

Does it qualify for a Cornavirus Distribution?

[Brian EA]

[QUOTE=TaxGuyBill;n309141]Does it qualify for a Cornavirus Distribution?

Yes it is.
Does the 3 year period ends at the end of this year or has it already ended last April 15th?
Thanks Taxguy

[TaxGuyBill]

Yes, you can amend to claim it as a Coronavirus Distribution. And yes, it can be recontributed within 3 years of the date of distribtution (sometime in 2023.

If there is a recontribution, you may need to amend 2020 and/or 2021 if they already claimed the income.

[Lion]

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?

A3. You are a qualified individual if –

• You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
• Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
• You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
• You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
• You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.

Q4. What is a coronavirus-related distribution?

A4. A coronavirus-related distribution is a distribution that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs.

Q5. Do I have to pay the 10% additional tax on a coronavirus-related distribution from my retirement plan or IRA?

A5. No, the 10% additional tax on early distributions does not apply to any coronavirus-related distribution.

Q6. When do I have to pay taxes on coronavirus-related distributions?

A6. The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.

Q7. May I repay a coronavirus-related distribution?

A7. In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution.

If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022. See sections 4.D, 4.E, and 4.F of Notice 2005-92 for additional examples.

[Brian EA]

Yes, you can amend to claim it as a Coronavirus Distribution. And yes, it can be recontributed within 3 years of the date of distribution (sometime in 2023.

If there is a recontribution, you may need to amend 2020 and/or 2021 if they already claimed the income.

They claimed the $7500 in the first year- all of it.
The $22,000 was not reported.
I will include it in 2020, however do I enter it as a non-taxable distribution and omit the 8915E?
If I use the 8915E and spread it out then a third of it will be taxable, which means that I will have to amend the 2021 return also.
After that I will have to do a second amendment to clear it off.
Does all of this sound logical?
Brian

[Rapid Robert]

I was holding off on commenting, but now Brian EA has asked about exactly what I was thinking -- the sequence of returns to file.

My first principle is, you have to give the IRS computer what it expects. Pretend you have to re-create these returns in your software, and ask what you need.

If the 1099-R had been properly reported as CRD, then this is what would have happened:

TY2020 - pay tax on 1/3rd, include 8915-E
TY2021 - pay tax on 1/3rd, include 8915-F
TY2022 rollover the distribution 100% back into the IRA - need to amend prior two returns for refunds, and 8915-F of course.

(I'm not looking this up, so correct me if I remembered the forms wrong)

So you have to use your amendments to re-create that scenario, I think. The question is, can you get IRS to process all three as a batch, so that the net increase in tax is zero? Or will taxpayer have to actually pay TY2020 & 2021 first, then wait for refund? All I know about it is, you don't want to combine multiple tax years in a single envelope if paper filing (although combining separate envelopes/tax years in one shipment could work). If efiling, maybe wait for each year to be accepted before filing the next year in sequence.

In other words, I'd say "no", don't enter anything as a non-taxable distribution and don't omit the 8915-E.

[Rapid Robert]

My limited experience is that when you send in an amended return reporting a balance due within the normal 3-year statute limit, they will start billing you on their regular cycle for balance due returns, if you haven't already paid.

[TaxGuyBill]

You need the 8915-E to state it is a Coronavirus Distribution, otherwise recontributions are not allowed after 60 days.

Because there isn't a designated place to tell the IRS about a recontribution after the due date, I would enter the 1/3 recontribution on line 10 or 18 of the 8915-E ... and describe the situation on the 1040X.

[Rapid Robert]

After pondering some more and spending some time reading about the amendment process in the instructions for Form 8915-F (2021 version, but I assume similar will apply for 2022) I think you can do this all in one pass. In other words, my fears about having to first pay and then wait for refund are unfounded.

Hopefully you have good software. I think by simply following the amendment process first to report the missing 1099-R then to show the CRD treatment, and finally to show the rollover repayment, you can create one 1040-X each for 2020 and 2021 to show all of these changes. Your "explanation" section of course should be pretty detailed, but if you take good notes during the software amendment process, you'll have your explanation. It's going to take you considerable time though, so be sure to bill appropriately.

Since the net result should be no refund or balance due hopefully there is no stress over how long it might take to process these returns.

"there isn't a designated place to tell the IRS about a recontribution after the due date"

I think that is what 8915-F is for. There has to be some designated place to show amendment to 2020 for a refund?

[Brian EA]

[QUOTE=Rapid Robert;n309152]After pondering some more and spending some time reading about the amendment process in the instructions for Form 8915-F (2021 version, but I assume similar will apply for 2022) I think you can do this all-in-one pass. In other words, my fears about having to first pay and then wait for refund are unfounded.

The first distribution of $7500 was fully reported and taxed in 2020. On the Amended return I selected the 3-year option. This will result in a refund. On the omitted 1099R, I also selected the 3-year option. The bottom line is a balance due of $498. Should I let the client pay that amount or leave it pending?
Now I will prepare the 2021 Amended and let them pay the balance due or wait until the recontribution is completed and then file a second amendment.
The recontribution will either be done later this year or before the tax season ends which means I will show the repayments in the 2022 Return.
Does this make any sense?
Your inputs are very much appreciated.
Thanks
Brian

[New York Enrolled Agent]

[QUOTE=Brian EA;n309161]

After pondering some more and spending some time reading about the amendment process in the instructions for Form 8915-F (2021 version, but I assume similar will apply for 2022) I think you can do this all-in-one pass. In other words, my fears about having to first pay and then wait for refund are unfounded.

The first distribution of $7500 was fully reported and taxed in 2020. On the Amended return I selected the 3-year option. This will result in a refund. On the omitted 1099R, I also selected the 3-year option. The bottom line is a balance due of $498. Should I let the client pay that amount or leave it pending?
Now I will prepare the 2021 Amended and let them pay the balance due or wait until the recontribution is completed and then file a second amendment.
The recontribution will either be done later this year or before the tax season ends which means I will show the repayments in the 2022 Return.
Does this make any sense?
Your inputs are very much appreciated.
Thanks
Brian

Brian - I would review IRS Notice 2020-50. It contains details on how to report the recontributions.

I’m not sure but perhaps TGB or others will weigh in - the Notice states an election of reporting the CRD cannot be changed. You state the first CRD of $7,500 was reported in full ( the one-year election). You may have a problem with trying to amend into the three-year election now. As I said, not sure how that will fly.

I would be careful until the actual recontribution is made. Review the Notice.

[TaxGuyBill]

The first distribution of $7500 was fully reported and taxed in 2020. On the Amended return I selected the 3-year option.

Oh, as NYEA mentioned, that's not going to work. You elected out of the 3 years and you can't change that. So everything is on the 2020 return. Nothing for the 2021 or 2022 returns.

So if the $7500 was already taxed, nothing changes there. If the $22,000 is recontributed, it will result in zero tax. You would just need to change the forms a bit to include the $22,000 distribution and recontribution, but the net result would be $0.

However, it seems like you are asking what to do BEFORE the contribution. Ideally, if the taxpayer is going to recontribute the $22,000, it would be easiest to do it before you do anything with the tax returns. Otherwise, you would need to amend the 2020 return to claim the $22,000 as income. Then amend AGAIN if/when it is recontributed.

[Brian EA]

[QUOTE=TaxGuyBill;n309164]


Oh, as NYEA mentioned, that's not going to work. You elected out of the 3 years, and you can't change that. So, everything is on the 2020 return. Nothing for the 2021 or 2022 returns.

I agree but it gets a little more complicated. The taxpayer used the $7500 as a down payment for his first-time buyer residence to avoid the 10% penalty. I will amend the return to change the status to Corona Virus Withdrawal and attach the 8915E. I will also include the $22000 that was omitted. Once this amendment goes through, I will do a second amendment when the recontribution is completed.
Hopefully, this will resolve this issue.
Any other suggestions, gentlemen?
I do appreciate your contribution.
Thanks
Brian

[TaxGuyBill]

So are you saying that 8915-E was NOT filed with the original 2020 return?