My member had received a CP2501 notice from the IRS showing a balance due of $32,284 for the 2017 tax year. Needless to say, during our first conversation he was quite confused about what he had done wrong. But more than anything, he was distressed about the prospect of having to pay out so much money, given that he was retired and on a fixed income.
The first issue on the notice was a lump sum Social Security distribution that the IRS claimed he had not reported. The second issue was a distribution from the Oregon Public Employees Retirement System on which the IRS wanted to assess taxes.
After reviewing the member’s tax return, I was relieved to learn that he had already reported the Social Security income he had received. I could see it very clearly on the Social Security Benefits Worksheet – and on the Earlier Year Lump-Sum Social Security Worksheet – that he had submitted with his 2017 tax return. In addition, the code on the member’s 1099-R form from Oregon clearly indicated that the retirement plan distribution from the Oregon Public Employees Retirement Distribution was not taxable.
I sent in a response to the IRS showing that the Social Security Income had been reported by sending copies of the Social Security Benefits Worksheet and the Earlier Year Lump-Sum Social Security Worksheet from the 2017 tax year. I also explained in my letter that the Oregon retirement income was not taxable due to disability and pointed out that the distribution code 3 on the State of Oregon 1099-R reflected that it was not taxable.
A few months later we received our response from the IRS. The final outcome was a “no change” letter, meaning no taxes were owed at all. The member was thrilled with the result. The message he sent over said, “OMG! Thank you sooo much! If you were here I would give you a big hug – and I am not a hugger so that's a big deal. 😊”
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