Tax question: 1099R Distribution code P - amend 2005 or file in 2006 ?

Question

I have the following situation:

I got a refund from my 401K for contributions in 2005. I got the refund in 2006 and recently (in 2007) got a 1099R form which has a Distribution code P.

My Tax software (TaxCut from H&R Block) does not allow me to show this as an income in 2006. It tells me that I have to amend my 2005 return to show this as additional income. While it makes sense that its taxable income for 2005, I am not sure how to proceed.

Questions:
1. Is this correct? Do I have to file amendment for my 2005 taxes?

2. Should I just file 2006 return as usual without any information about this refund?

3. If I have to file an amendment for 2005, I will have to pay taxes on the refund I got from 401k. Do I have to pay any penalty/interest since I did not report or pay this earlier? (I couldn't report this earlier because I got this 1099R in early 2007)


Any other thoughts?

Answer 1

Yes, you must amend 2005.

Though you received the 1099R in 2007, you probably received a letter in early 2006 explaining the situation and how it effects your 2005 taxes.

And yes.....you will owe interest on extra tax you will have to pay.

Answer 2

well the sooner the better because you still have the chance to do that and if you don't file the IRS will get you back the next time you file. it happen to my mom. unless you don't have a business or at home business or get any money from the government you don't have to worry about paying back. well do it quick and good luck. I hope you get a lot of money back. I did. hahal. lol.