CP2000 for early withdrawal penalty - covid

[ljr]

Has anyone else's clients started getting CP2000 notices asking for the 10% penalty related to distributions from plans that were covid related? We filed out form 8915-E and when you check off the coronvirus box it removed the penalty and did not complete form 5329. Now the CP2000 notice is being sent for the penalty and saying to fill out form 5329. I'm thinking that there is some "breakdown" in their system that is not stopping the notices from being generated. Nothing I do completes or fills out the 5329 so I'm just going to do a disagreeing letter and include another copy of form 8915-E showing the box checked. I hope that works. Any other suggestions? 

[carriebraswell]

My client received the same type of letter.  I faxed over a disagreement letter.  They also did not recognize 2/3 of the income going into future years.  In the client's case, he did not inform me of making that election in the prior year, so 1/3 of the income did not appear on the 2021.  I have since amended the 2021. 

[TaxGuyBill]

When it was first released in ProSeries, I think we had to attach it as a PDF.  Was that done? 

If not, that may be the problem.  If it was attached as a PDF, it wouldn't surprise me that the IRS computers miss it.

[qbteachmt]

"In the client's case, he did not inform me of making that election in the prior year, so 1/3 of the income did not appear on the 2021."

Just keep in mind that is Opposite of how it works. It will be spread over three years unless the client elects not to do so and instead will report it all in that first year.

Q6. When do I have to pay taxes on coronavirus-related distributions?

A6. The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.

[dkh]

@carriebraswell    Did you prepare the 2021 return without seeing a copy of the 2020 return ?????????