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1099-Q Redeposited

gabjo00
Level 3

Have a client who closed one 529 and transferred it into another one for the same child.  She received a 1099-Q for the distribution.  She child didnt go to school, there were no actual education expenses.  How do I show the 1099-Q to not be taxable because it was just transferred to the same kind of account for the same student.

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sjrcpa
Level 15

If and when client gets a letter from IRS proposing tax, send a letter of explanation.

IRS should develop a form for 1099-Q distributions. I've had several clients get letters when all the money was used for qualified education expenses.


Ex-AllStar

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5 Comments 5
IRonMaN
Level 15

1099Q reporting is kinda stupid.  As long as they didn't pull the money out and buy a dozen pairs of Trump sneakers, there is nothing to report.  There is nothing on the return that allows you to report that a 1099Q was received but it isn't taxable.


Slava Ukraini!
gabjo00
Level 3

hmmmm...I had a client once that didnt put it on the return because it was not taxable and they received a letter.  But I think you are right because I cant find another way to make this not taxable.  And you are right, its kind of stupid.

sjrcpa
Level 15

If and when client gets a letter from IRS proposing tax, send a letter of explanation.

IRS should develop a form for 1099-Q distributions. I've had several clients get letters when all the money was used for qualified education expenses.


Ex-AllStar

The place to enter it is on the 1099Q worksheet.

As IRonMaN said, it really doesn't show up.  But I fill the 109Q worksheet out so when/if the notice comes, I'll see that I addressed it and it isn't going to be a problem.

And yes, I had an IRS letter on it and had to basically provide to them copies of all the receipts wiping out the total on the Q form.

IRS should definitely develop a form for the Q distributions.  Just from reading the questions and sometimes the answers posted here on this subject, it is pretty clear IRS is losing a good chunk of money with same expenses being used to claim the AOTC and to offset 529 distributions.

ProSeries does an EXCELLENT job (oh my, I can't believe I just said that) with the AOTC worksheets and the Q worksheets and how they cross-reference and compute the taxable income on each Q form.  The problem is I believe some don't understand the interplay between the Q and the T, and that certain expenses for the Q don't qualify for the T, and as a result the input of either/both may be incorrect.

When there is a Q involved, you need to make sure you do not enter more than $4000 of qualifying expenses for AOTC purposes on line 17 of the Student Information Worksheet.

Once all of this is done and the input is correct, a good way to double check all this is to enter the data for both these forms on the taxpayer doing the claiming (usually the parents) as well as on the student, making sure the student is marked as a dependent.  The computations on both returns must be exact.

It gets much more complicated when the grandparents are involved when we as preparers may not know about the Q they received, especially if we are not provided the detailed tuition bills and payments received by the schools (I could post at length why Box 1 of the T is wrong as often as it is right).  Which may be exactly why there isn't a form for a Q.  Would there be privacy issues if the parents had to include the personal information for a non-dependent taxpayer, like the grandparents, on their return?  Could that be why IRS hasn't developed a form for the Q?

Sorry for the mini novel.