Corona Virus Amended Return - 2020

[Brian EA]

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

No Sir, it was not.

[Rapid Robert]

". You state the first CRD of $7,500 was reported in full ( the one-year election)."

"You elected out of the 3 years and you can't change that."

No election was made on the original return, so it is too late to make an election now -- the default is 3-year spread. Also, CRD status is not all or nothing. I don't see why the $7.500 has to be treated as a CRD just because the $22K will be treated as a CRD. Form 8915-E has one column for total distributions and one for quailfied 2020 disaster distributions, they don't have to be the same, do they?

In another recent discussion, I reported how one of my clients included a distribution as normal on a TY2020 return, taxable in full. Then later, we amended it to include 8915-E to treat the distribution as a CRD spread over 3 years, and the amendment was processed and refund issued, so it can be done.

The one open question I still have, and which might yet cause some headaches here, is whether/why a CP2000 has not yet been issued for the missing $22K 1099-R.

[Brian EA]

No election was made on the original return, so it is too late to make an election now -- the default is 3-year spread. Also, CRD status is not all or nothing. I don't see why the $7.500 has to be treated as a CRD just because the $22K will be treated as a CRD. Form 8915-E has one column for total distributions and one for quailfied 2020 disaster distributions, they don't have to be the same, do they?

In another recent discussion, I reported how one of my clients included a distribution as normal on a TY2020 return, taxable in full. Then later, we amended it to include 8915-E to treat the distribution as a CRD spread over 3 years, and the amendment was processed and refund issued, so it can be done.

The one open question I still have, and which might yet cause some headaches here, is whether/why a CP2000 has not yet been issued for the missing $22K 1099-R.

[/QUOTE]


RR
With this being the third year, will it make any difference if the election is for one year or a 3-year spread?
I have not heard from the client as to when he is able to recontribute the funds. As soon as he recontributes the funds, I will amend the return.
I forgot to mention that $7500 was for the Taxpayer and the $22000 is for the Spouse. That would require 2 8915-E
It is also surprising to me why Uncle Sam has not yet issued CP2000.
Thanks
Brian

[Anarchrist]

With this being the third year, will it make any difference if the election is for one year or a 3-year spread?
It is also surprising to me why Uncle Sam has not yet issued CP2000.

In the long run it won't make a difference. Though with a 3 year spread the irs may be looking for a third of it on the 2021 1040. Since the irs' left hand has no idea what the right hand is doing, the taxpayer may get correspondence on the 2021 return before this is over.

Get a transcript for 2020 to see if the 1099 is on there. While surprising a CP2000 hasn't been issued, it's probably meaningless.

[Rapid Robert]

"With this being the third year, will it make any difference if the election is for one year or a 3-year spread?"

Why are we still talking about an election? The election to have a CRD be taxable all in one year had to be made on an original timely filed return, so it's now completely and totally off the table.

No CRD was reported on the 2020 return. (no Form 8915-E). I had to go back and look at the law, and contrary to what I speculated above, a CRD is "all or nothing" meaning any distribution during the first 365 days of the year to a person affected by COVID is a CRD. However, according to the facts presented, the $7,500 went to one spouse and the $22K to another, so it is possible that one was a CRD and the other wasn't, more facts would have to be determined.

There are three INDEPENDENT reasons for taking a CRD:

1) avoid 10% penalty for under age 59.5 (does seem to apply here based on comments).
2) spread taxable income over 3 years
3) allow rollover back to an IRA for up to 3 years instead of 60 days.

Each of these benefits stands on its own and does not depend on whether the other two apply.

Let's assume that both distributions were in fact CRDs.

Then the 2020 return should be amended to include 8915-E to correctly report the $29,500 CRD that was mistakenly omitted ($22K) or not reported as CRD ($7.5K) from the original return. Increase in taxable income of $2,333 (29,500/3 - 7,500). Because CRD treatment avoids the 10% penalty, no harm done there on the $7.5K distribution. 2021 return should be amended to report $9.333 of taxable income (29,500/3). Then 2022 return will show partial repayment (rollover) of $22K, which should lead to another layer of amendment to 2020 and/or 2021. As I said earlier, I believe with a clear explanation, both layers of amendment (first to CRD treatment, and then to reflect repayment) can be processed together in a single 1040X for each year.