Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

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Noalani
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Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sat Feb 17, 2018 5:56 pm

This is regarding a withdrawal I took on my son's 529 in 2015. Not completely understanding the withdrawal rules regarding time frame, I withdrew around $13,000 at the end of 2015 for tuition/fees/meal plan/housing/wifi for my son's spring 2016 term.

We received a letter from the IRS last year saying that we owed tax/penalty because a portion of our withdrawal for 2015 was non-qualified and was considered taxable income. Our tax guy issued them a letter that included a copy of all our qualified expenses, explaining that we had mistakenly withdrawn for the following year. Well, we just got another IRS statement informing us that we must pay tax/penalty/interest, and they already have applied our 2016 tax overpayment to part of the balance due.

Aaargh. Seeking feedback from anyone else who has experienced this??

livesoft
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by livesoft » Sat Feb 17, 2018 6:26 pm

I don't have experience with this, but if you are stuck, then that means the money paid should be counted toward what you need to get an education tax credit if your income is low enough, right?
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Noalani
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sat Feb 17, 2018 7:25 pm

livesoft wrote:
Sat Feb 17, 2018 6:26 pm
I don't have experience with this, but if you are stuck, then that means the money paid should be counted toward what you need to get an education tax credit if your income is low enough, right?
Hmmm...that hadn't occurred to me. This IRS letter was regarding tax year 2015 and we already filed & paid our 2016 taxes. I'll have to discuss this with the guy who did our 2016 taxes. Or, are you saying we could apply this money paid toward an education tax credit for 2017? Sorry--I get confused by some of this...

Thanks for replying!

livesoft
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by livesoft » Sat Feb 17, 2018 7:59 pm

No, I'm saying that the $13,000 you thought was paid from QTP (529) for Spring 2016 was not legitimately paid from a QTP. I think you can consider the $13,000 simply paid from your checking account which may allow you to get an education tax credit instead for 2016. If you didn't get an education tax credit for 2016, I suggest figuring out why not and perhaps filing an amended 2016 return if it turns out that you are eligible to get one.
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libralibra
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by libralibra » Sat Feb 17, 2018 8:47 pm

Noalani wrote:
Sat Feb 17, 2018 5:56 pm
I withdrew around $13,000 at the end of 2015 for tuition/fees/meal plan/housing/wifi for my son's spring 2016 term.
Did you pay the school the 13k in 2015 as well, or was it paid in 2016? If 2015, then I would think it is a qualified withdrawal and your 1098T box 7 would be checked. If paid in 2016, and you can't come up with 13k more qualified expenses to count in 2015, then I guess you are out of luck.

Also, when you take money out of a 529, you should have the choice of doing it in the beneficiary's name or the owner's name. If you choose the beneficiary's name, then any unqualified amounts are counted as income for the student - filing their own tax return might be cheaper than adding it to yours (only the earnings part is taxed anyway).

Noalani
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sat Feb 17, 2018 10:09 pm

livesoft wrote:
Sat Feb 17, 2018 7:59 pm
No, I'm saying that the $13,000 you thought was paid from QTP (529) for Spring 2016 was not legitimately paid from a QTP. I think you can consider the $13,000 simply paid from your checking account which may allow you to get an education tax credit instead for 2016. If you didn't get an education tax credit for 2016, I suggest figuring out why not and perhaps filing an amended 2016 return if it turns out that you are eligible to get one.
Got it. I just checked the income maximum limit for that tax credit and our income did not qualify in 2016. Thanks for the help.

Noalani
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sat Feb 17, 2018 10:19 pm

libralibra wrote:
Sat Feb 17, 2018 8:47 pm
Noalani wrote:
Sat Feb 17, 2018 5:56 pm
I withdrew around $13,000 at the end of 2015 for tuition/fees/meal plan/housing/wifi for my son's spring 2016 term.
Did you pay the school the 13k in 2015 as well, or was it paid in 2016? If 2015, then I would think it is a qualified withdrawal and your 1098T box 7 would be checked. If paid in 2016, and you can't come up with 13k more qualified expenses to count in 2015, then I guess you are out of luck.

Also, when you take money out of a 529, you should have the choice of doing it in the beneficiary's name or the owner's name. If you choose the beneficiary's name, then any unqualified amounts are counted as income for the student - filing their own tax return might be cheaper than adding it to yours (only the earnings part is taxed anyway).
I paid the school in 2015 for spring 2016 tuition/fees, etc. I have since become more familiar with the 529 rules and realize now that I'm supposed to withdraw and pay in the same calendar year that the expenses are incurred. The crazy thing is that I pre-paid the 2016 tuition and fees on 12/31/15! In the eyes of the IRS, my 2015 withdrawals are deemed excessive.

I think we may be out of luck. Dang! Thanks for your input.

lstone19
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by lstone19 » Sat Feb 17, 2018 10:44 pm

I thought it was year paid, not year it was for, that governed. So if you withdrew in 2015 and paid in 2015, even though for Spring 2016, it was fine. My son’s school always had Spring tuition and fees due on 1/5 so we always withdrew and paid in December. If I was wrong, well, it was all several years ago.

I’m actually curious what caused the IRS to question it. Considering that if your income is too high for the education credits or deductions, none of your education expenses end up on the return nor, if used for qualified expenses, any of your 1099-Q income, how did they determine it was used for non-qualified expenses? I’ve seen comments elsewhere that suggest the IRS will sometime question when 1099-Q amounts exceed tuition reported on a 1098-T (which may be reported in the wrong year if the school reports year billed rather year paid) but there are a lot more qualified expenses than just those reported on a 1098-T.

DIFAR31
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by DIFAR31 » Sat Feb 17, 2018 11:42 pm

If the distribution was taken in 2015 and the qualified expenses were paid in 2015, that should work. It doesn't matter that the expenses being paid were spring semester 2016 expenses.

If the IRS computers catch a mismatch between the school's 1098-T and the 529 plan's 1099-Q where the 1099-Q distribution amount exceeds the 1098-T qualified expenses amount, there's a pretty good chance that a notice will be sent to the taxpayer. This is frustrating, because there can be significant 529 qualified expenses billed by and paid to the school that the school will not be reporting on the 1098-T, most notably any room and board expenses.

Gray
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Gray » Sat Feb 17, 2018 11:55 pm

My approach is to initiate spring semester 529 withdrawals on January 2 that match the invoice from the school. So I do the distribution from the 529 to my Ally Money Market which is already stocked full of funds for property taxes, and then a payment to the university from Ally.

libralibra
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by libralibra » Sun Feb 18, 2018 12:26 am

Noalani wrote:
Sat Feb 17, 2018 10:19 pm
I paid the school in 2015 for spring 2016 tuition/fees, etc. I have since become more familiar with the 529 rules and realize now that I'm supposed to withdraw and pay in the same calendar year that the expenses are incurred. The crazy thing is that I pre-paid the 2016 tuition and fees on 12/31/15! In the eyes of the IRS, my 2015 withdrawals are deemed excessive.

I think we may be out of luck. Dang! Thanks for your input.
Expenses paid for a school term starting in the first 3 months of the next year count as qualified expenses in the current year. That's what Box 7 on the 1098T is all about.

Maybe it boils down to whether you are talking about quarters or semesters. If you meant the Spring Quarter, then hopefully is began by 3/31/2016. If so, or you are talking about a semester starting in Jan, then I think your tax guy needs to write a better explanation to the IRS. If not, then it's not qualified.

Wagnerjb
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Wagnerjb » Sun Feb 18, 2018 8:53 am

Noalani wrote:
Sat Feb 17, 2018 10:19 pm

I paid the school in 2015 for spring 2016 tuition/fees, etc. I have since become more familiar with the 529 rules and realize now that I'm supposed to withdraw and pay in the same calendar year that the expenses are incurred. The crazy thing is that I pre-paid the 2016 tuition and fees on 12/31/15! In the eyes of the IRS, my 2015 withdrawals are deemed excessive.

I think we may be out of luck. Dang! Thanks for your input.
I got a very similar letter a few months ago (in September 2017), also regarding the 2015 tax year. The IRS gets the information on your withdrawals, but has no information on the amount of college expenses. I have received three or four of these letters over the years. I am pretty sure they don't send the letters to everyone with a 529 account. My hunch is that the letters are only sent to people with either a) high 529 withdrawals or b) high income levels, or c) both.

It sounds like you had legitimate college expenses paid in 2015 that are equal or greater than your 529 withdrawal in 2015, right? If so, your mistake was letting your accountant respond to the IRS, telling the IRS that you mistakenly withdrew too much.

If you paid the spring 2016 tuition on 12/31/2015 then it should have been listed on the response to the IRS as a qualified expense for 2015. Was it?

Best wishes.
Andy

lstone19
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by lstone19 » Sun Feb 18, 2018 9:23 am

A recurring theme in all forums dealing with taxes seems to be people who assume if the IRS sends you a letter saying you made a mistake on your return and owe $x, you must owe $X. The IRS makes mistakes too or, as may well be true in this case, has incomplete information (as I said above, if your income is too high for any of the education deductions and credits, then typically none of your education expenses nor the 1099-Q income ends up anywhere on your tax return; when a letter then comes from the IRS, all that then needs to be done is document how the 1099-Q income was spent of qualifying expenses). If the IRS notice said they changed your return (essentially, they did a 1040X on your behalf), then the correct thing to do may be better document your original return and send them a 1040X of your own restoring your return to how you originally filed it (we had to do that once - many years ago, we had a return changed by the IRS who claimed we took a credit we weren't entitled to take. As this was back in the days of paper filing, I'm pretty sure they just failed to process that form (so 1040 claimed the credit but they had no record of the form that line on 1040 came from)).

As I see that the original post says the IRS applied part of the poster's 2016 refund to the amount they determined was due, it sounds like the IRS has already amended the return and that a 1040X to put it back as filed is going to be needed. It would probably be useful if the OP provides a lot more details since this started as "we withdrew in the wrong year" and now seems to be morphing into "the IRS doesn't know about all our qualified expenses". Details of any 1098-Ts received will probably be helpful as well - I wonder if a factor here is the OP paid in 2015 (as in, mailed a check that day) but the school didn't credit it until 2016 (date mailed is date paid).

Education expenses on tax returns has so many issues that I look forward to 4/15 - not because it's another year to file but because it's another year that is no longer reviewable by the IRS.

lstone19
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by lstone19 » Sun Feb 18, 2018 9:55 am

Wagnerjb wrote:
Sun Feb 18, 2018 8:53 am
I got a very similar letter a few months ago (in September 2017), also regarding the 2015 tax year. The IRS gets the information on your withdrawals, but has no information on the amount of college expenses. I have received three or four of these letters over the years. I am pretty sure they don't send the letters to everyone with a 529 account. My hunch is that the letters are only sent to people with either a) high 529 withdrawals or b) high income levels, or c) both.
To my surprise, we've never received IRS letters. But with our income too high for education credits or deductions and my son having a full-tuition scholarship, 529 withdrawals were low and always made to him, not us. My own theory is that when there's a match of both a 1099-Q but no 1098-T for the same taxpayer (1098-Ts have the student's SSN) and no education expenses on the return (which will be expected for high income taxpayers who don't qualify for the credits/deductions), then a letter. But since we had the 529 withdrawals go to our son, there was a 1099-Q/1098-T match. Actually, I'm surprised he has not received a letter for 2015 as the school did not issue a 1098-T in 2015 (his last year as an undergraduate and first as a graduate student at the same school) since due to the timing of how they applied the scholarship, no 1098-T was issued as amounts paid from scholarships exceeded tuition billed (mixing amounts paid and amounts billed makes for a mess but that's what they do). But 2015 was when he took out the excess (taxable but no penalty due to being offset by a scholarship) so that return has a Form 5329 which might well be another marker the IRS uses to assume you're reporting it correctly.

Wagnerjb
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Wagnerjb » Sun Feb 18, 2018 3:37 pm

lstone19 wrote:
Sun Feb 18, 2018 9:55 am


To my surprise, we've never received IRS letters. But with our income too high for education credits or deductions and my son having a full-tuition scholarship, 529 withdrawals were low and always made to him, not us. My own theory is that when there's a match of both a 1099-Q but no 1098-T for the same taxpayer (1098-Ts have the student's SSN) and no education expenses on the return (which will be expected for high income taxpayers who don't qualify for the credits/deductions), then a letter.
I took 529 distributions (in my name) every year from 2009 to 2015. I received the nastygram from the IRS for 2010, 2011 and 2015. In each of those years, I was in the very top tax bracket and the 529 distributions were substantial ($27k, $26k and $47k). In 2009 and 2012 I had much lower income, the 529 distributions were lower ($8k, $16k) and I qualified to take the AOT on our joint return.

Your theory of the matching of 1099-Q and 1098-T works for each of those 5 years. For three of the years, I got the nastygram. For the other two years, I had educational expenses on our joint return.

What about 2013 and 2014? In 2013 I had healthy - but not top tax bracket - income, and my 529 withdrawal was only $9,500. In 2014 I had even more income - still below the top bracket - and withdrew $21k from the 529. Neither of these years fits your theory since I didn't have educational expenses on our joint return in either year.

My theory is that my very high income - maybe coupled with large 529 distributions - triggered the letters in 2010, 2011 and 2015. For 2013 and 2014 I wonder if my income was just below a threshold for audit, or if the size of the distributions was below the audit threshold.

I took distributions in 2016 and 2017 as well, so if I get audited (or not) will help with our theories.

Best wishes.
Andy

NotWhoYouThink
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by NotWhoYouThink » Sun Feb 18, 2018 5:35 pm

Fire your tax guy. This is common and easy to explain. You paid the bills the same year you took out the money, right? Put that in a letter to the IRS, and they will drop their demand for more tax money. Many on this board have done it.

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mudfud
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by mudfud » Sun Feb 18, 2018 6:03 pm

I'm not sure what mistake you have made. Check this for more: https://www.forbes.com/sites/josephhurl ... 9747a96155
"Are you sure you have tested an a priori hypothesis?" | | Image

Noalani
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sun Feb 18, 2018 7:00 pm

lstone19 wrote:
Sat Feb 17, 2018 10:44 pm
I thought it was year paid, not year it was for, that governed. So if you withdrew in 2015 and paid in 2015, even though for Spring 2016, it was fine. My son’s school always had Spring tuition and fees due on 1/5 so we always withdrew and paid in December. If I was wrong, well, it was all several years ago.

I’m actually curious what caused the IRS to question it. Considering that if your income is too high for the education credits or deductions, none of your education expenses end up on the return nor, if used for qualified expenses, any of your 1099-Q income, how did they determine it was used for non-qualified expenses? I’ve seen comments elsewhere that suggest the IRS will sometime question when 1099-Q amounts exceed tuition reported on a 1098-T (which may be reported in the wrong year if the school reports year billed rather year paid) but there are a lot more qualified expenses than just those reported on a 1098-T.
I'm embarrassed to say that the original IRS letter is in my tax guy's office right now. I should've kept a copy of it...I'll have to retrieve my entire 2015 file from him next week. I wish that I had known last year to use this forum as a sounding board for this issue. I kind of panicked when I saw an IRS letter and I have since come to realize that, especially with these 529s, these letters are auto-triggered and that the issue might have been resolved with a brief letter from me to the IRS.

I believe the red flag WAS raised in our situation because in 2015 payments were made both to my son AND to me. Also, I withdrew a large chunk from the 529 that year ($50,000+) and the 1098-Ts from two different colleges (he transferred) were less than what was on the 1099-Qs (about $35,000). Because I was a bit confused by all of this, I thought the issue was qualified vs non-qualified expenses but now I realize it may be related to ME being the recipient of a chunk of the payments, rather than my son as the designated beneficiary.

Noalani
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sun Feb 18, 2018 7:02 pm

Gray wrote:
Sat Feb 17, 2018 11:55 pm
My approach is to initiate spring semester 529 withdrawals on January 2 that match the invoice from the school. So I do the distribution from the 529 to my Ally Money Market which is already stocked full of funds for property taxes, and then a payment to the university from Ally.
Yup. I have since initiated all withdrawals in the first part of January for spring term. And, after reading through many of the comments here, I'm going to start having the payments made directly to my son as he is the designated beneficiary.

Noalani
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sun Feb 18, 2018 7:13 pm

Wagnerjb wrote:
Sun Feb 18, 2018 8:53 am
Noalani wrote:
Sat Feb 17, 2018 10:19 pm

I paid the school in 2015 for spring 2016 tuition/fees, etc. I have since become more familiar with the 529 rules and realize now that I'm supposed to withdraw and pay in the same calendar year that the expenses are incurred. The crazy thing is that I pre-paid the 2016 tuition and fees on 12/31/15! In the eyes of the IRS, my 2015 withdrawals are deemed excessive.

I think we may be out of luck. Dang! Thanks for your input.
I got a very similar letter a few months ago (in September 2017), also regarding the 2015 tax year. The IRS gets the information on your withdrawals, but has no information on the amount of college expenses. I have received three or four of these letters over the years. I am pretty sure they don't send the letters to everyone with a 529 account. My hunch is that the letters are only sent to people with either a) high 529 withdrawals or b) high income levels, or c) both.

It sounds like you had legitimate college expenses paid in 2015 that are equal or greater than your 529 withdrawal in 2015, right? If so, your mistake was letting your accountant respond to the IRS, telling the IRS that you mistakenly withdrew too much.

If you paid the spring 2016 tuition on 12/31/2015 then it should have been listed on the response to the IRS as a qualified expense for 2015. Was it?

Best wishes.
Thanks so much for your best wishes. I truly wish I had thought of asking this group when I received the letter last year. I never would've had our accountant respond. I would've done it myself! And, I'm not sure how our accountant replied because he has the response in our file at his office. I'm retrieving the file next week. I'm learning some important lessons.

NotWhoYouThink
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by NotWhoYouThink » Sun Feb 18, 2018 7:14 pm

You can do that, and it may or may not matter. With our 2 kids, we only got one of those CP2000 letters, for one kid's 529. And a very simple letter from me to the IRS took care of it. No receipts, no details, just a letter.

IRS letters generate stress, but your tax guy should have had the presence of mind to help you deal with it. What do you pay him for, anyway?

Noalani
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Joined: Mon Jun 26, 2017 10:50 pm

Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Noalani » Sun Feb 18, 2018 8:05 pm

Thank you to all who have replied and posted on this thread. All your responses have made me come up with two decisions:

1) I plan on having all 529 payments issued to my son. This way he will have the matching 1099-Q/1098-T.
2) I am taking the reins back from our accountant and doing our own taxes again. I had done them for many years but then started working again and thought it'd be less stressful to pass the baton to someone else. Big lesson learned. Now that I know how knowledgeable and experienced the minds on this forum are, I know where to turn for help when needed.

lstone19
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by lstone19 » Sun Feb 18, 2018 8:21 pm

Wagnerjb wrote:
Sun Feb 18, 2018 3:37 pm
lstone19 wrote:
Sun Feb 18, 2018 9:55 am


To my surprise, we've never received IRS letters. But with our income too high for education credits or deductions and my son having a full-tuition scholarship, 529 withdrawals were low and always made to him, not us. My own theory is that when there's a match of both a 1099-Q but no 1098-T for the same taxpayer (1098-Ts have the student's SSN) and no education expenses on the return (which will be expected for high income taxpayers who don't qualify for the credits/deductions), then a letter.
I took 529 distributions (in my name) every year from 2009 to 2015. I received the nastygram from the IRS for 2010, 2011 and 2015. In each of those years, I was in the very top tax bracket and the 529 distributions were substantial ($27k, $26k and $47k). In 2009 and 2012 I had much lower income, the 529 distributions were lower ($8k, $16k) and I qualified to take the AOT on our joint return.

Your theory of the matching of 1099-Q and 1098-T works for each of those 5 years. For three of the years, I got the nastygram. For the other two years, I had educational expenses on our joint return.

What about 2013 and 2014? In 2013 I had healthy - but not top tax bracket - income, and my 529 withdrawal was only $9,500. In 2014 I had even more income - still below the top bracket - and withdrew $21k from the 529. Neither of these years fits your theory since I didn't have educational expenses on our joint return in either year.

My theory is that my very high income - maybe coupled with large 529 distributions - triggered the letters in 2010, 2011 and 2015. For 2013 and 2014 I wonder if my income was just below a threshold for audit, or if the size of the distributions was below the audit threshold.

I took distributions in 2016 and 2017 as well, so if I get audited (or not) will help with our theories.

Best wishes.
Who knows. All we can do is speculate about how they do it. In the end, we keep good records so if an IRS letter comes, rather than panic, we pull out the records and send them a well documented response showing that we filed correctly.
mudfud wrote:
Sun Feb 18, 2018 6:03 pm
I'm not sure what mistake you have made. Check this for more: https://www.forbes.com/sites/josephhurl ... 9747a96155
Good article emphasizing that in some situations, none of the 1099-Q income or educational expenses end up anywhere on your tax return. And recently, we've seen the same issue being raised here with the 1099-K and people thinking you must report that income somewhere on your return.
Noalani wrote:
Sun Feb 18, 2018 7:00 pm
lstone19 wrote:
Sat Feb 17, 2018 10:44 pm
I thought it was year paid, not year it was for, that governed. So if you withdrew in 2015 and paid in 2015, even though for Spring 2016, it was fine. My son’s school always had Spring tuition and fees due on 1/5 so we always withdrew and paid in December. If I was wrong, well, it was all several years ago.

I’m actually curious what caused the IRS to question it. Considering that if your income is too high for the education credits or deductions, none of your education expenses end up on the return nor, if used for qualified expenses, any of your 1099-Q income, how did they determine it was used for non-qualified expenses? I’ve seen comments elsewhere that suggest the IRS will sometime question when 1099-Q amounts exceed tuition reported on a 1098-T (which may be reported in the wrong year if the school reports year billed rather year paid) but there are a lot more qualified expenses than just those reported on a 1098-T.
I'm embarrassed to say that the original IRS letter is in my tax guy's office right now. I should've kept a copy of it...I'll have to retrieve my entire 2015 file from him next week. I wish that I had known last year to use this forum as a sounding board for this issue. I kind of panicked when I saw an IRS letter and I have since come to realize that, especially with these 529s, these letters are auto-triggered and that the issue might have been resolved with a brief letter from me to the IRS.

I believe the red flag WAS raised in our situation because in 2015 payments were made both to my son AND to me. Also, I withdrew a large chunk from the 529 that year ($50,000+) and the 1098-Ts from two different colleges (he transferred) were less than what was on the 1099-Qs (about $35,000). Because I was a bit confused by all of this, I thought the issue was qualified vs non-qualified expenses but now I realize it may be related to ME being the recipient of a chunk of the payments, rather than my son as the designated beneficiary.
As someone else said earlier, fire your tax guy. Knowing that year paid, not year due or year for, governs, should be basic knowledge for a tax professional. Unfortunately, it sounds like he may have made things worse for you and once he said you withdrew in the wrong year (when all they wanted was verification that the funds were spent on qualified educations expenses), that triggered the IRS to change your return and now a 1040X is probably required. For the explanation on the 1040X, I'd disown the tax guy's response, say you're amending back to what you filed originally, and include a simple statement that all 1099-Q distributions were spent on qualified expenses and maybe attach a brief statement of how it was spent (dates and amounts of payments and for what). Unfortunately, once you do that, it could be several months before you get a refund (but it will be paid with interest).

Wagnerjb
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Re: Help! Are we stuck paying the tax/penalty/interest on this 529 withdrawal?

Post by Wagnerjb » Sun Feb 18, 2018 10:16 pm

lstone19 wrote:
Sun Feb 18, 2018 8:21 pm
I'd disown the tax guy's response, say you're amending back to what you filed originally, and include a simple statement that all 1099-Q distributions were spent on qualified expenses and maybe attach a brief statement of how it was spent (dates and amounts of payments and for what).
Three years ago in this thread, I posted the exact language written by KPMG in response to a 529 letter from the IRS. Feel free to use that language if you feel it is appropriate.

viewtopic.php?f=2&t=159770&p=2398168&hilit=529#p2398168

Best wishes.
Andy

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