IRS disallowed reduced Recovery Rebate Credit

[LauraC2]

Has anyone had an issue with IRS reducing a refund by the Recovery Rebate Credit calculated by the program? It's on a client with a reduced credit as their income is over the limit.

Is the worksheet in the program wrong?

[sjrcpa]

Did the client receive an advance EIP payment, or two?

[IRonMaN]

I asked my clients that question when the came in for their 8:00 am appointments.  They said they didn't know.  Then I asked them what they had for breakfast.  They said they didn't know.  I can hardly wait until next year when I get to ask if they received any advance child tax credit payments.  😒

[LauraC2]

No, they didn't receive any stimulus payments. The Lacerte program calculated a reduced credit on the worksheet but he IRS denied the credit and reduced the refund by the amount. I'm wondering if the worksheet is not calculating correctly?

[George4Tacks]

@LauraC2 - Your client either received the EIP and forgot, or got the the EIP as a debit card and tossed it as junk mail. As mentioned earlier - don't trust the memory of your clients. https://www.irs.gov/coronavirus/economic-impact-payment-information-center can lead all you knead to knough! 

My client insisted they never got it, actually it went into their bank and they just thought it was a tax refund. Many people tossed the debits cards because the really did look like junk mail from MetaBank. (Where is MetaBank?)

Guide them through https://www.irs.gov/newsroom/questions-and-answers-about-the-first-economic-impact-payment-topic-f-p... and be sure to charge for the extra service. 

You should be able to look carefully at the Lacerte worksheet to determine if it is wrong. I really doubt it is. 

[Connie Buskohl CPA]

I am having the same problem.

I have confirmed that the amount of the EIPs are accurate.

I have contacted Lacerte Tech Support and they said that they do not have any other reports of this being a problem.

[sjrcpa]

How did you confirm the EIP?

[NCJ]

My client received a reduced amount for EIP1 & EIP2 initially.  That reduced amount was part of the worksheet in Lacerte.  Lacerte calculated the taxpayer was entitled to the Recovery Rebate credit for part of the EIP1 that was not received.  The taxpayer just received an IRS notice stating they were not entitled to the Recovery Rebate credit and have to pay the credit back as it had initially reduced the balance due.  Why doesn't the Lacerte calculation and IRS agree with the calculated Recovery Rebate credit?

[qbteachmt]

@NCJ 

@Connie Buskohl CPA 

@LauraC2 

Have you done the math yourself?

"You should be able to look carefully at the Lacerte worksheet to determine if it is wrong. I really doubt it is."

Using the IRS information, do the math yourself.

"I have confirmed that the amount of the EIPs are accurate."

Use their 2020 info, including the amounts received, for EIP 1 and EIP 2. Don't use any 2019 or earlier info. Compare it to Lacerte and to the IRS response. Confirm Lacerte has the dependents correct, and that your taxpayers' qualify; EIP 1 and 2 have slightly different qualifications.

"I am having the same problem."

Narrow it down to the problem, because right now, there is no Same Problem.

[joshuabarksatlcs]

https://proconnect.intuit.com/community/lacerte-tax-discussions/discussion/recovery-rebate-credit-th...

A week or so ago, there was another thread along this line.  PPECPA initiated the original message.  In the end, PPECPA seemed to conclude the IRS made a mistake.

The computation for the Recover Rebate Credit is fairly simple.  

2020 AGI

EIP1 received

EIP2 received 

====>  Balance of RRC on Line 30.  

Lacerte use the 2020 AGI in the computation.  I doubt the 2019 AGI was in the picture.   

The messages from NCJ Connie and Laura seemed to indicate they did the work.  Now I start to wonder if IRS errors are possible. 

In the case of PPECPA, the adjustment made by the IRS was exactly the total of the two EIP amounts.  At one point, I was wondering whether the info provides by the clients represented only half of the total EIP payments (husband got half and wife got half and the IRS records obtained from the IRS website showed 50% under the H's account (SSN) and the other half on the W's.) 

PPECPA checked and said that was NOT the case.   Based on the info, one possibility was that the IRS recorded the EIP amounts twice.  I have NO idea how the info was processed by the IRS so I don't know if that was possible.

For what it's worth, NCJ, Connie and Laura, after verifying your math - and IF your math was correct - take a look at the adjustment by the IRS.  Could you make some sense out of the  adjustment?  Did the IRS adjustment happen to be the same as the EIP received? 

Just bantering here while nursing my daily bourbon regimen....        

[qbteachmt]

For this part: "I doubt the 2019 AGI was in the picture."

It is not part of the 2020 tax filing reconciliation. It was used to project what a taxpayer's 2020 might look like for purposes of EIP prepayment, if the 2019 tax form was available at the time the EIP payments were being made. Otherwise, 2018 would have been used.

This is not like the EIC, where you can choose which year's AGI to base it on. The Recovery Rebates are based only on 2020 actuals. That's why you use what they got in 2020, and ignore how that was computed, now that you are working on the 2020 tax returns.

There is no doubt. It's in the CARES Act.

[sjrcpa]

IRS website says if they make a change to the RRC they will send an explanation.

" If a correction is made to any RRC, EITC or ACTC claimed on the return, the IRS will send taxpayers an explanation. "

[joshuabarksatlcs]

Writers write; reads interpret.

I'd bet we in this forum all know how Line Rebate Recover Credit on Line 30, 2020 Form 1040 is computed. 

Even if not, Lacerte would do it for us using the 2020 AGI, EIP1 and EIP2 info.  If the EIP info is left blank, Lacerte generates a diagnostic.  

In the earlier message, qbteachmt said: " Use their 2020 info, including the amounts received, for EIP 1 and EIP 2. Don't use any 2019 or earlier info",

I infer qbteachmt meant to TELL our fellow practitioners not to use 2019 or earlier info.  My "doubt" that 2019 info was in the picture was my confidence (based on my presumption) that they did NOT use the 2019 info.  I have made it clear how Lacerte computed RCC in the first few lines of my message.  Your interpretation of my line was way off... 

[qbteachmt]

"My "doubt" that 2019 info was in the picture was my confidence (based on my presumption) that they did NOT use the 2019 info."

And the "they" is any or all of the three people that are contributing to this topic with the info that results in their confusion and requests for help. And the first thing to do is... wait for it...

The Math, yourself.

So, there is no doubt for how it is to be done. There might be doubt for how "you" filled in any form. When "you" do your own math, don't use any info from 2019 or earlier.

[bandb]

My client got a CP 11, stating the Recovery Rebate Credit was incorrect, yet the Worksheet appears to be inputted  correctly. I do have a question about the worksheet. EIP # 1 phases out at $198,000. EIP # 2 phases out at $174,000. Yet, the  factor in the worksheet for the excess over the $ 150,000 threshold is 5%. Since the phaseouts are different, shouldn't the reduction factor be 2 diffeten percentages? Client's AGI was within the phaseout rane for #1 but exceeded the phaseout range for #2.

[sjrcpa]

???

EIP 1 and 2 were advance payments of the Recovery Rebate Credit for 2020.

The AGI that matters is that on the 2020 1040. The RRC is calculated on that, less EIP 1 and 2 received. If there is a balance they get a credit on the 1040. 

[qbteachmt]

"Yet, the factor in the worksheet for the excess over the $ 150,000 threshold is 5%."

It's not that simple. You need to consider how children affect that phase out, too. Here's one example:

https://www.irs.gov/newsroom/calculating-the-economic-impact-payment

[bandb]

I reviewed the calculations on the Recovery Rebate Credit Worsheet, and it is correct. Yet the IRS disallowed EIP #1 and not EIP #2This is strange becaust phase out is lower for # 1 than #2? I advised that a letter disputing the disallowance is in order. Agreed?

[qbteachmt]

"Yet the IRS disallowed EIP #1 and not EIP #2"

Did you take into consideration the payments they received? This is not just an issue of Credits. The Credits were paid in out in advance, as much as possible, and the 1040 form is the reconciliation of entitlement to money already received, based on eligibility.

"Since the phaseouts are different, shouldn't the reduction factor be 2 diffeten percentages?"

These are separate provisions, and whatever is the same or different between them is moot. You do the math for each, and compare to the payments of each, as separate.