Adjust taxable amount on 1099-r related to direct rollover

[taxprepper]

The client did a direct rollover a Roth 401k to a Roth IRA in 2020. He was mailed two checks. One for the non-taxable Roth designations and another for employer contribution matches. However, he didn't deposit the employer check into the Roth IRA due to COVID hardship, but the 1099-R is showing this distribution as a non-taxable direct rollover. The client would like to file the 8915-E to include the distribution in income in 2020 and avoid the 10% penalty.

How do I adjust the taxable amount on the 1099-R such that the employer match distribution becomes taxable? 

[qbteachmt]

"direct:" "The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount."

How did he cash a check not payable to him?

"but the 1099-R is showing this distribution as a non-taxable direct rollover."

Exactly.

The employer amount typically is pre-taxed and would not qualify for Roth, unless he intended to do a conversion of it. It would be rolled into a Trad IRA account.

You would enter each 1099-R separately and on the worksheet, mark that one of them is a coronavirus disaster distribution.

[taxprepper]

Thank you for your response.

I believe he deposited it to his brokerage account at the same financial institution, which accepted the deposit. He hasn't rolled it over yet.

In Line 7, Part II of the 8915-E, ProConnect is not allowing me to adjust the "cost of distributions," which should be $0. Looks like it's pulling $0 from the 2a taxable amount that was reported on the 1099-R.

Is it possible to manually adjust this amount on line 7?

[qbteachmt]

Let's remember you asked a combined issue: "he didn't deposit the employer check into the Roth IRA due to COVID hardship,"

The employer check would be pre-tax match, and would have no basis for him. That's also why, if he had made that deposit, that would be Conversion. But you have to find out; perhaps it is post-tax. That would be unusual, but it happens. His own funds into Roth 401(k) would be post-tax.

"I believe he deposited it to his brokerage account at the same financial institution, which accepted the deposit. He hasn't rolled it over yet."

Then, he likely has passed the timeliness for a rollover (conversion). He has a taxable event; it's a separate qualification for penalty or not, and then there is the option to report it all in 2020 or let the 8915-E report it as income over three years.

"In Line 7, Part II of the 8915-E, ProConnect is not allowing me to adjust the "cost of distributions," which should be $0."

I don't know what adjust "cost" means, here. You have two 1099-R to enter, work through the worksheet, use the forms, confirm what qualifies.

"Looks like it's pulling $0 from the 2a taxable amount that was reported on the 1099-R."

Look at form 5329, to see if that applies. It has codes for you to identify the distribution is not a tax-exempt rollover.

You seem to have a need to review 8915-E, 5329, 8606.