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Trusted Pioneer
Posts: 5
Registered: ‎03-20-2016
Accepted Solution

CP2000 regarding HSA distributions in 2015 Tax Year

I filed my taxes on H&R Deluxe for the 2015 year. I received a letter from the IRS stating that the HSA distribution is income and that I owe taxes and a penalty. I have the receipts from the HSA bank that cover the entire amount in question, so I am confident I don't owe taxes. I also confirmed that my e-filing should have included the Form 8889: however, I have questions on the Form 8889 that was filled by the program - they may be some errors there. I would like to talk to someone from H&R before I respond to the IRS. Should I set up an appointment to meet someone in one of the offices? And what all documents should I bring (just the PDF of the filed documents or the *.T15 tax file also)?

 

Thanks 

 

TxInjun

Tax Pro
Posts: 5,536
Registered: ‎02-23-2016

Re: CP2000 regarding HSA distributions in 2015 Tax Year

Hi TxInjun,

 

Welcome to the H&R Block community.

 

While you're always welcome to meet with a tax professional in an office, I may be able to assist you right here and save you the time.  What are the questions?

 

There are 3 things that automatically make you ineligible to contribute to an HSA and if one of those three things applied to you that could be where this is coming from.  The three disqualifiers include:  (1) you were the dependent of another taxpayer or were eligible to be claimed as the dependent of another taxpayer, (2) you did not have a high deductible health plan, and (3) you had another insurance plan outside of your high deductible health plan.

 

If you were eligible to contribute to an HSA but contributed over your limit for the year then that could also be the answer.

 

If you would like to tell me what's going on and send me your questions through a private message instead of here you're welcome to click on my name and that will give you the option to send me one.  If you would like you may also send me a line-by-line description of your 8889 along with your out-of-pocket & employer contribution amounts and your distribution info and I'll look it over for you.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Trusted Pioneer
Posts: 5
Registered: ‎03-20-2016

Re: CP2000 regarding HSA distributions in 2015 Tax Year

Hi Louis,

 

Thanks for your response and help.

 

Of the 3 things you mention, none apply to me (i.e. I am eligible for an HSA account): (1)I'm not a dependent of anybody else (2) I DID have a HDHP and (3) No other insurance outside of this plan. I'm the single income earner in my household so there isn't another insurance via wife's work etc.

 

I also did not contribute over the limit: my contributions + employer contributions for 2015 was $6200, under the $6650 IRS limit for 2015.

 

The IRS sent a CP2000, claiming that the administrating bank (Optum Bank in my case) showed a distribution of $5563 but that I had shown $0 on my return. On checking, I did declare that $5597 was used in medical expenses (this shows up in my 8889 line 15). (I did make a small mistake - the reason I had entered $5597 was that there was a reimbursement of $34 that I missed). So all I can think of doing now, is to submit the receipts for the $5563 to the IRS. Given HRBlock's Audit guarantee, I want to involve HRBlock in the process, and ensure my response is correct.

 

The one oddity in form 8889, is that TaxCut has included both my contributions as well as employer match, all in line 9 which is labeled "Employer Contributions": but there doesn't seem to be any other place to enter the 2 amounts separately so it probably doesn't matter much.

 

Let me know if I'm going about this properly.

 

Thanks again,

 

TxInjun

Neighbor
Posts: 72
Registered: ‎02-28-2016

Re: CP2000 regarding HSA distributions in 2015 Tax Year

"The IRS sent a CP2000, claiming that the administrating bank (Optum Bank in my case) showed a distribution of $5563 but that I had shown $0 on my return. On checking, I did declare that $5597 was used in medical expenses (this shows up in my 8889 line 15). (I did make a small mistake - the reason I had entered $5597 was that there was a reimbursement of $34 that I missed). So all I can think of doing now, is to submit the receipts for the $5563 to the IRS. Given HRBlock's Audit guarantee, I want to involve HRBlock in the process, and ensure my response is correct."

Your Form 8889 should show $5563 on line 14a and 14c (assume 14b is zero). Then, line 15 should also be $5563. That would make line 16 equal to zero and therefore no tax on this distribution. There was no need to adjust for $34 as it seems that your bank does not consider the $34 as a 2016 distribution. Suggest revising Form 8889 as I describe and sending with a brief cover sheet that says your original Form 8889 contained an error. There is no need to be specific by mentioning reason for the $34 difference.

 

"The one oddity in form 8889, is that TaxCut has included both my contributions as well as employer match, all in line 9 which is labeled "Employer Contributions": but there doesn't seem to be any other place to enter the 2 amounts separately so it probably doesn't matter much."

TaxCut is correct. All contributions made through your employer belong on line 9. Both amounts are treated as pretax contribution and receive the exact same tax treatment.

Trusted Pioneer
Posts: 5
Registered: ‎03-20-2016

Re: CP2000 regarding HSA distributions in 2015 Tax Year

Thank you for your response BluesDog, it is very helpful. Indeed line 14a and 14c were blank, I'm not sure why TaxCut did not fill them in. I will take your advice to re-do the 8889, with lines 14a and 14c populated. I was planning on only re-submitting the form 8889 and not the entire return, is that the right approach?

 

Regards

 

TxInjun

Neighbor
Posts: 72
Registered: ‎02-28-2016

Re: CP2000 regarding HSA distributions in 2015 Tax Year

For this situation, there would be no need to send more than Form 8889 unless the IRS has instructed otherwise in their correspondence.

Trusted Pioneer
Posts: 5
Registered: ‎03-20-2016

Re: CP2000 regarding HSA distributions in 2015 Tax Year

I wanted to post an update, to share the resolution of this problem.

 

As advised by BluesDog, I re-filed Form 8889 with lines 14(a) and 14(c) filled. For some reason, TaxCut left them empty in the original Tax Year 2015 submission. The IRS just replied last week with a "$0 Tax Due" letter.

 

Thanks to LouisH and BluesDog! My issue is resolved.

 

Regards

 

TxInjun

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Neighbor
Posts: 72
Registered: ‎02-28-2016

Re: CP2000 regarding HSA distributions in 2015 Tax Year

Excellent. Update is always appreciated.