Quick overview

Receiving an IRS or state tax notice about a retirement account can be stressful, but most notices are procedural and resolvable. Notices commonly stem from mismatched reporting (a 1099‑R or Form 5498 that doesn’t match what the IRS has on file), excess contributions, or a reported early distribution.

This article walks through how these notices typically work, what documents to gather, how to respond in writing, options for correcting reporting errors (including corrected 1099s and amended returns), and when to escalate (penalty abatement, appeal, or the Taxpayer Advocate Service).

Sources: IRS publications on IRAs and distributions (Pub. 590‑A and 590‑B) and official IRS notice guidance (see CP2000 guidance and 1099‑R/5498 instructions) (irs.gov).

Why the IRS or state might send a retirement-account notice

  • Mismatched reporting: custodians and plan administrators issue Form 1099‑R for distributions and Form 5498 for contributions. If the forms the IRS receives don’t match your return or their records, you may get a CP2000 (proposed changes) or a different bill/letter. (IRS, Instructions for Forms 1099‑R and 5498)
  • Excess contributions: contributions above annual limits trigger tax or corrective distribution obligations. (See IRS Pub. 590‑A)
  • Early distributions: withdrawals before age 59½ that do not meet an exception may carry a 10% additional tax; the IRS may assess it if a distribution is reported. (IRS Pub. 590‑B)
  • Rollover/reporting errors: rollovers reported incorrectly by the custodian can look like taxable distributions.
  • Identity, clerical, or processing errors by the plan provider.

Step‑by‑step: what to do the moment you get a notice

  1. Read the notice carefully and note the deadline. Most IRS notices include a response deadline (commonly 30 days for disputes on CP2000), and the notice explains how to respond.
  2. Don’t panic. The notice usually proposes a change; it is not always final. Follow the instructions on the notice exactly for responding.
  3. Identify the notice type and form referenced (for example, CP2000, CP14, or another letter) and the tax year involved.
  4. Gather documents:
  • Your account statements showing the contribution or distribution (the exact dates and amounts).
  • The Form 1099‑R (distribution) and Form 5498 (contribution) you received from the plan provider.
  • Your filed tax return for the year in question.
  • Any corrected forms issued by the provider (if available).
  1. Contact the plan administrator or custodian as soon as possible. If the provider misreported a 1099‑R or 5498, request and document a corrected form.
  2. Respond in writing to the IRS using the instructions and address on the notice. Include copies (not originals) of supporting documents. Keep proof of mailing or track the delivery.

Practical note from experience: in many cases, a quick call to the custodian resolves the issue — and a corrected 1099 or a written statement from the custodian closes the case without an amended return.

How to prepare your response package

  • Cover letter: briefly state why you disagree or confirm the notice is accurate. Include your name, SSN, tax year, and the notice number.
  • Attachments: copies of the relevant tax return pages, account statements, distribution confirmations, corrected 1099s (if issued), and any correspondence with the custodian.
  • If you agree you owe tax: follow the payment instructions on the notice or request a payment plan if needed.

Sample items to include:

  • A copy of the notice (front page).
  • Form 1099‑R or 5498 copies.
  • Custodian email/letter confirming dates and amounts.
  • Explanation of rollover (if funds were moved between accounts within 60 days or direct trustee‑to‑trustee rollover).

If the custodian misreported: getting a corrected 1099‑R or 5498

  • Immediately ask the plan administrator for a corrected information return (Corrected 1099‑R or 5498). Most mistakes are administrative and the custodian can refile with the IRS.
  • Get the correction in writing (email or letter) and include that with your IRS response.
  • If the custodian refuses to cooperate, document your calls and follow up in writing. Consider escalating to the custodian’s compliance department.

Authoritative reference: instructions for Forms 1099‑R and 5498 on IRS.gov.

If you need to amend your return

  • If the notice is correct and your original return omitted income or reported a wrong rollover, file Form 1040‑X (amended U.S. individual income tax return) for the tax year in question.
  • Include corrected schedules and copies of the Forms 1099‑R/5498 and any custodian letters that explain the change.
  • If you file an amended return and it creates additional tax, pay interest from the original due date to avoid more penalties.

Tip: In many misreporting cases, you don’t need to amend if the custodian files a corrected 1099 and the IRS updates their records. Confirm with the IRS or your tax advisor.

Asking for penalty relief or abatement

  • If the IRS assessed a penalty (for example, the 10% additional tax for early distributions or late excess contribution taxes), you can request relief by showing reasonable cause or by qualifying for the IRS’s First‑Time Abatement (FTA) where applicable. (See IRS Penalty Relief page.)
  • Reasonable cause examples include reliance on incorrect written advice from the plan administrator, a medical emergency, or a mistake caused by a custodian’s misreporting.
  • Provide detailed documentation that supports your claim: emails, letters from the custodian, medical records (if applicable), and a concise statement of events.

Caveat: penalty relief is discretionary and decided on the facts and circumstances. Document everything.

Appeals and escalation

  • If you disagree with the IRS after responding, you can file a formal protest or appeal. The notice will explain appeal rights and timelines.
  • If the notice involves collection action or you face unfair delay or hardship, contact the Taxpayer Advocate Service (TAS) for independent help (taxpayeradvocate.irs.gov).
  • If you still can’t resolve the issue with the IRS, a tax attorney, enrolled agent, or CPA who practices before the IRS can represent you.

Common scenarios and recommended actions

  • Misclassified withdrawal (taxable vs. nontaxable rollover): request corrected 1099‑R (report as rollover code on the corrected form), send custodian correspondence to the IRS, and avoid paying until the issue is clarified.
  • Excess contribution notice: remove the excess promptly (corrective distribution) or file to pay the excise tax. See IRS Pub. 590‑A for contribution limits and corrective steps.
  • Early distribution penalty notice: demonstrate an exception (medical expenses, disability, certain qualified higher education or first‑home expenses, etc.) with corroborating documentation. See Pub. 590‑B for distribution exceptions.

For more on penalty exceptions for early IRA withdrawals, see our guide: Penalty Exceptions for Early IRA Withdrawals Explained.

Timing and what to expect

  • Many notices offer 30 days to respond; some allow longer for payment arrangements. Responding promptly prevents escalation to lien or levy.
  • If you’re waiting for a corrected form from a custodian, notify the IRS in writing with expected timelines and copies of your request to the custodian.

Practical checklist (one‑page) to resolve a retirement‑account notice

  • [ ] Read the notice and confirm the deadline.
  • [ ] Identify the tax year, form referenced (1099‑R, 5498), and amount.
  • [ ] Gather statements and the original filed return.
  • [ ] Call the plan custodian and request corrected information if needed; get written confirmation.
  • [ ] Draft a concise cover letter and attach supporting documents.
  • [ ] Mail response using the address on the notice, keep proof of delivery.
  • [ ] If additional tax is owed, consider paying to stop interest and penalties, then pursue refund or abatement if appropriate.

When to hire help

  • You should strongly consider hiring a tax professional if:
  • The amount in dispute is large.
  • The notice includes collection threats (levy, lien, enforced collection).
  • The facts require legal interpretation (complex rollovers, inherited accounts, or trust/estate issues).

A practitioner who deals with retirement‑account notices regularly will know which documentation sways an examiner and how to structure an appeal.

For related guidance on avoiding reporting traps when moving plans, see: Rolling Over Employer Plans: Steps to Avoid Tax Traps and How to Coordinate 401(k) Contributions with an IRA.

Example case (real‑world, anonymized)

A client received a CP2000 claiming a taxable distribution because their former employer’s plan reported a rollover as a distribution on the 1099‑R. We requested a corrected 1099‑R, included plan statements and a trustee‑to‑trustee rollover confirmation, and replied to the CP2000 within the 30‑day window. The IRS accepted the correction and withdrew the proposed tax and penalty.

Lesson: timing and clear documentation (custodian confirmation + account statements) solved the issue without paying the proposed tax.

Final notes and resources

  • Keep copies of every retirement account statement and the information returns (1099‑R, 5498) each year.
  • Bookmark IRS Pub. 590‑A and 590‑B (Contributions and Distributions) and the IRS penalty relief pages for reference.
  • If you run into delays or an uncooperative custodian, document every interaction and consider professional representation.

Author disclaimer: This article is educational and not personalized tax advice. For specific tax help, consult a qualified tax professional or attorney. The IRS is the authoritative source for tax rules; see IRS.gov for up‑to‑date forms and instructions.

Selected IRS references

Additional help: If you cannot resolve an IRS problem through normal channels, contact the Taxpayer Advocate Service (taxpayeradvocate.irs.gov).