Tax Client Received a CP 2000 Because of IRA Distributions Used to Purchase First Time Home

Issue: Tax client received $30,000 in IRA distributions to purchase first home.
$30,000 included as income on line 16b of 2007 tax return. Client was taxed on the $30K. However, there was no way to inform the IRS that the total distribution was being used to purchase first home.


Problem: The IRS sent a CP 2000 - requesting that the client pay the 10% penalty on the $30,000 IRA early distribution.

Taxpayer Responce: Money was used to pay down payment for first home.

IRS Response: Only the first $10,000 in 2007, can avoid penalty for first time home purchase, the balance has a 10% penalty.

You can use Form 5329 - Additional Taxes on Qualified Plans OMB (Including IRAs) and Other Tax-Favored Accounts to report the exception to the 10% penalty if you are not yet 59 1/2