Usually, I post Ask The Reader questions on Monday. However, my current situation calls for some urgency, so I’m getting this one out now. Also, it’s a bit of a rant and Thursdays were traditionally my day to complain.
UPDATE! Thank you so much to Eric Bowlin, Danny the Pizza Guy, Rob, freddy smidlap and and Fiery Millennial Gwen who all encouraged me to call the IRS. I did just that and the IRS couldn’t have been nicer about the issue. The representative stated that there had been an error on their side and dismissed the issue. Phew.
Up until very recently, I’ve had a fine relationship with the IRS. I pay my taxes and file my return. End of story. See you next year Mr. Tax Man. I’m sad to report that our relationship has soured.
IRS Mess Stress
A couple weeks ago, I started getting robocalls stating that I owe the IRS money. The creepy robotic voice on the other end would say something like this:
You owe the IRS money. If you don’t return this call with 24 hours, you will be arrested. Blah, blah, blah…
Whatever. I know that these calls are scams. If the IRS wants to get a hold of you, they send a letter.
But then, I received a letter. From the actual IRS. And it wasn’t good.
I opened the IRS envelope without much worry. I had received notes from the IRS some years ago after an incompetent accountant botched my taxes. I figured this was just another accountant error. But it wasn’t.
The letter explained that in 2016, I had taxable income that I didn’t tell the IRS about to the tune of $150,000. The income was reported by Vanguard in the form of a 1099-R.
A 1099-R is used to report a distribution from a retirement plan. I had taken a distribution, but it went to another qualified plan when I rolled over a 401(k) to another 401(k).
My first thought was that Vanguard had messed up the 1099-R. I looked at Box 7 of the form which specifies the type of distribution. It had the letter G which translates to this:
Direct rollover of a distribution (other than a designated Roth account distribution) to a qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA.
Vanguard had it right:
I then looked over the documentation from when I rolled over the 401(k). Everything was correct; all of the tax ids were good, the checks were made out to the new plan (not me), on and on. I couldn’t find any errors.
I had an accountant review everything to make sure I wasn’t missing something. He confirmed that everything looked good.
The Scary Part
I’ve spent many hours digging up documentation to prove my case. But the thing that
scares terrifies me is that I’ve had to deal with any of this at all. The 1099-R clearly shows that the distribution was a rollover. What am I missing here? Is this just a clerical error that will be dismissed once the IRS sees my documentation?
2016 was the highest income year of my life. I had topped out at my job and Mrs. 1500 had started working again. Our income was over $200,000. If the IRS comes to the conclusion that I have to pay taxes, I’ll owe about $50,000 plus penalties.
I’m probably worrying too much. Maybe these errors happen frequently. Maybe the IRS computer was just having a bad day. I hope so.
Has the IRS ever botched something with your tax return? If so, was it resolved?
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