Lump Sum Problem

2008-03-24 by

Today TaxMama hears from Scott in Utah, who’s upset . “My wife and I E-filed using TurboTax online deluxe, reporting a lump sum Social Security payment. We had a refund coming from both fed and state. Then we got an IRS letter telling us ‘We changed the amount of taxable social security benefits on line 20b of your form 1040 because there was an error in the computation of the taxable amount.’ Now we owe a ton of money – and TurboTax says it will take six weeks to review my situation. What do we do now?”

Dear Scott,

Call up IRS and ask them to put a 60-day hold on your file. Tell them that you are working with
your software provider to find the problem.

Mark the date on your calendar – and also mark it on your calendar 2 weeks before the deadline – so you remember to follow up with TurboTax while there’s still time.

Meanwhile, do pester Turbo Tax and try to run the Lump Sum calculation yourself to see if the number on your tax return was correct.

Call TurboTax regularly and make a friendly, but persistent pest of yourself. Remind them that they told MarketWatch.com last year, that their program WILL handle this computation properly – so why should you have to wait six weeks for them to get this to work for you?

While you’re waiting, try to figure out the calculation yourself. Follow IRS’s worksheet on the Social Security lump sum calculation. See Lump Sum – example
http://www.irs.gov/publications/p915/ar02.html . If your manually computed result is the same as the amount on your tax return, mail that to IRS with the notice and explain that this was a lump sum payment, not regular Social Security Income.

And remember, you can find answers to all kinds of questions about IRS notices and other tax issues, free. Where? Where else? At TaxMama.com

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IRS Publication 915
Social Security Disability (SSDI) Lump Sum computation
MarketWatch.com - January 2007
TaxMama's article about Social Security Disability (SSDI) Lump Sum computation

# | Posted in Tax Quips | Comments » (3)



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  1. Lucie Says:
    March 24th, 2008 at 07:45 am

    I am one of the software developers for TurboTax.

    If Larry wants to, he can send me the particulars of his situation and I will work with him directly to resolve his issue.

    We at TurboTax strive to make each and every one of our customers 100% satisfied.

  2. Keith L. Reed Says:
    March 24th, 2008 at 09:17 am

    There are a couple ways to handle lump sum Social security payments. Whether Turbotax did it right or not isn't the issue. The issue is getting the IRS off Scott's back. The only way to quickly do this is go to a professional tax preparer and have him/her check it out. This is a lesson learned on using TurboTax, he's "got people" 6 weeks to late.

  3. Concerned Citizen Says:
    March 24th, 2008 at 06:09 pm

    I agree with Keith, since the IRS has refigured your tax, take your notice and your tax information and seek professional assistance from a CPA or an Enrolled Agent immediately.
    Either should have sufficient tax experience and experience dealing with the IRS to assist you.
    Also, when you receive a Notice from the IRS, all requests or related communication with the IRS should be in writing with reference to the Notice number or a copy of the Notice included and sent with a return receipt. Keep everything that they send you, you may need it later.
    If you speak to an IRS representative over the phone take down their name, badge number, time and date of the call, and the information you discussed.

    If you cannot afford professional assistance, take the Notice that you received and your tax information to the nearest Taxpayer Assistance Center for your area, explain your situation and let them assist you.
    http://www.irs.gov/localcontacts/index.html
    If you redo the calculation by hand and come out with the same answer as on your filed return, do as suggested by Tax Mama and send your computation along with a copy of the Notice (sent return receipt) to the address listed on the Notice. In the event that there isn't an address on the Notice, call the number on the Notice and ask where to send your information. Or take it all to your local Taxpayer Assistance Center since the due date is rapidly approaching.
    Right now, Turbo Tax is the least of your worries, do not wait on them to to assist you. Right or wrong, you now have a liability to the IRS that will be due on 4/15/2008. Get the ball rolling with the IRS first and deal with them later.
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