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Category: Tax
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Experience:  over 40 years experience in tax matters
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I made an error on a withdrawal request from my annuity. Instead

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I made an error on a withdrawal request from my annuity. Instead of requesting free annual withdrawal requested free withdrawal. When I realized mistake I was allowed to put money back into annuity but was told that the withdrawal would still be reported to the IRS.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

Yes, it is true that the withdrawal will be reported to the IRS. However, that does not make it taxable. Since the funds were replaced the tax reporting, by you, will be different. If you look at last years tax return you will see that there are both (a) and (b) lines for reporting the withdrawal. The (a) line is where the withdrawal, at gross amount, will be reported. The (b) line will be used to report the taxable amount of the withdrawal. Thus, for example, if the withdrawal was $10,000 and you put all of it back the (a) line will show the $10,000 (matching to the 1099-R) and the (b) line will be zero (reflecting the replacement of the funds. If you did not put all the money back only the money retained by you will be reported on the (b) line.

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Customer: replied 3 years ago.

Jackson National sent a 1099 stating the the entire $43,000 was taxablle. Can I still report the withdrawal as you described in your answer? I am asking because our accountant included the $43,000 on our 2011 tax return but decided it wasn't taxable since I returned the money. Now, the IRS has questioned the tax return saying we owe $10,000 extra in taxes plus $2,000 in penalties.

As long as you can prove the money was returned you will be in a good position. You need to have made the return of funds within 60 days of the withdrawal. I recommend sending the IRS a letter (should be done by your accountant) explaining the situation and providing a copy of all pertinent documents. The IRS will review these and should reverse the billing.
Customer: replied 3 years ago.

can we get the annuity company to change the 1099-R? So far they refuse to and state that it is an IRS rule that all withdrawals are taxed (except for a rollover) regardless of whether a mistake was made or not.

The annuity company is unlikely to change the 1099-R but you should certainly try. The "taxing" of all withdrawals, as they are using the word, refers to withholding taxes. On your actual return, income is recorded (roll overs and corrections not being income) and the tax for the year is computed. Any and all withholding taxes are then applied against this and any overpayment is refunded or credited to the next tax year at your discretion.

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