This sounds like a reporting error. The next step is to determine if the bank made made the reporting error or if the IRS misunderstood what was reported. 

First, go to the 1099R and there’s a rollover code or a distribution code, beginning with a letter. The code should be G. If it’s rollover code G, then that means the bank is telling the IRS the rollover is not taxable (not a distribution). Then on the rollover form there might also be a spot where it says “taxable amount” and if it’s code G, that tax amount should also say, “0.”

If the 1099R reads with the code “G” and tax amount “0”, then the bank is correct in their reporting and the next step is for the IRS to understand that what was reported to them was correct and that it was a nontaxable distribution. No amount is taxable.

If the bank put a rollover code of anything other than G, or put taxable amount as anything other than 0, then the bank miss-reported to the IRS. In this case, you need to get copy of the correspondence and it is suggested to write the IRS a letter and stating that clear instructions were given to the bank on how to complete the 1099R and that the bank completed the form erroneously.

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