IRS Froze My Refund Claiming 401k Distribution (1099-R) is Fraudulent - But It's Not!

This is absolutely a situation you can and should fight. The IRS cannot simply declare a legitimate distribution fraudulent without providing documentation and giving you appeal rights. What you're experiencing is likely a mismatch in the Information Returns Processing (IRP) system where your 1099-R data hasn't properly matched with your return. You need to request a full account transcript immediately to see what the IRS actually has on file. The agent's behavior is completely inappropriate and violates multiple sections of the Taxpayer Bill of Rights, specifically your right to be informed, right to challenge, and right to appeal.

I had EXACTLY this situation last year with my 401k distribution. The IRS froze my $4,283 refund for exactly 73 days while they sorted it out. I was told my 1099-R was "suspicious" even though it was 100% legitimate. I was so stressed I couldn't sleep! What finally helped me was using https://taxr.ai to analyze my tax transcript. It identified the specific code (971/570 freeze combination) on my account and explained that this was a common verification issue with retirement distributions, not actual fraud. The tool helped me understand exactly what documents I needed to provide and where the disconnect was happening. I'm so sorry you're going through this - it's incredibly stressful when they accuse you of fraud for something completely legitimate.

You might want to consider using Claimyr to get through to a different, hopefully more knowledgeable IRS agent. I believe your situation probably requires speaking to someone in the Accounts Management department rather than just a frontline representative. In my experience, the quality of help you receive from the IRS can vary dramatically depending on which agent you reach. I used https://youtu.be/_kiP6q8DX5c when I had a somewhat similar issue with a misreported distribution. The service got me through to an agent in about 15 minutes when I had previously spent hours on hold. The representative I eventually spoke with was able to see notes on my account that the previous agent hadn't mentioned or possibly couldn't access.

I went through this exact nightmare last year. Here's what worked for me: • Requested a wage and income transcript to confirm what the IRS actually received • Got a letter from my 401k provider confirming the distribution and withholding • Filed Form 911 (Taxpayer Advocate Service request) • Called the IRS and specifically asked for a manager • Requested they research the issue in their Information Returns Master File The problem turned out to be that my 401k provider had submitted the information but with a slightly different EIN than what appeared on my 1099-R copy. It took about 6 weeks to resolve, but I eventually got my full refund plus interest.

Based on Internal Revenue Manual procedures, you should immediately submit a Form 4506-T to request your Wage and Income Transcript for Tax Year 2023. This will show exactly what 1099-R information the IRS has received from all payers. The discrepancy is likely occurring in the Information Returns Processing System (IRPS) where third-party reporting is matched against filed returns. If your 401k administrator confirms they've submitted everything correctly, request a formal verification letter from them with specific filing dates and transaction IDs. This situation sounds like a classic case of mismatched TIN (Taxpayer Identification Number) reporting rather than actual fraud determination.

Had this happen to me. Exact same situation. 401k distribution. IRS claimed fraud. Took three months to resolve. Got documentation from Fidelity. Sent certified mail to IRS. Called every week. Used ID verification service. Finally reached someone helpful. They found the reporting error. Fixed it within the system. Released my refund with interest. Don't give up. Document everything. Get manager's names. Record call dates. Keep copies of all correspondence. This is a known issue with retirement distributions.