Skip to main content

IRS says, you owe on 401k, 1099 says I paid. What do I do?

Eugene, OR |

The IRS has send a notice of additional taxes owed in 2008. They site that I received a 401k disbursement and didn't report it on my 1040. I have a transcript of that and the 1099 from the 401k trustee that shows I did report both the taxes paid and the income received. In addition, I am in bankrupcy and cannot afford in any way the additional tax they say I owe.

I have until 1/13/10 to respond to the IRS. Please advise.

+ Read More

Filed under: Tax return Tax law
Attorney answers 3

Best Answer

If you paid to have your tax return prepared, a reputable company, such as Liberty Tax, will help you without charge and correct any error in your return. If you self prepared, call the IRS. Usually the IRS is very good at explaining where it believes a mistake has been made.

If your 401k distribution was made earlier than the plan allows, then the additional tax may be due to a 10% premature distribution excise tax. Many people run afoul of the penalty. Discuss the problem of taxes owed with your bankruptcy attorney. The taxes may not be dischargable, but they may be considered in any workout or debtor plan.

Please keep in mind that there are many variables that could be applied to the brief facts you have given. The information offered here is general in nature and is not a legal opinion nor is it specific tax advice.


If I understand your facts correctly, you reported the 401(k) income and there were taxes withheld from the distribution. You need to make sure with your employer that the Form 1099 you used to report your distribution is in fact correct and most up to date. Then you need to check your Form 1040 to make sure the distribution was fully reported as income and the taxes withheld were shown on the return. Then if there is an error discuss this with your accountant and then the IRS.

Hope this helps.
Mr. Fromm is licensed to practice law in PA. The response herein is not legal advice and does not create an attorney/ client relationship. The response is only in the form of legal education and is intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received.
By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question.
Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.


If you reported the income from the distribution on your 1040, paid the penalty (if applicable), and paid any tax due -- Prepare a letter to the IRS explaining that you do not owe the tax, that it was already paid. Include a copy of the return and the canceled check for payment of the taxes and ask that they correct their records. Send it certified mail, return receipt requested. Also call the IRS service center and let them know that you did this. Ask them to place you account on collection hold status until this is resolved.

Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.