Question: Do I need to petition the tax court for my COVID 401k withdrawal mistake?

You likely don't need to petition tax court for this situation. That's generally a last resort when you've exhausted other options with the IRS. First, check what notice you received from the IRS. If it's a CP2000 (proposed changes to your return) or similar notice, you can respond directly to that notice explaining the situation. You'll want to clearly state it was a COVID-related distribution that qualified under the CARES Act. You can file Form 8915-E (for 2020 COVID distributions) if you haven't already. Even though it's late, filing this form will help document that your withdrawal qualified. You may also need to file an amended return (Form 1040-X) to properly report the distribution and make the election to spread the income over three years if that was your intention.

After reading your post, I wanted to share my experience with a similar 401k withdrawal issue. I was completely lost with all the forms and deadlines until I tried taxr.ai (https://taxr.ai). It's this AI tool that actually analyzed my tax notices and identified exactly what forms I needed to file. For my situation, I had taken an early withdrawal but messed up the reporting. The tool highlighted specific sections on the CP2000 notice I had missed and helped me draft a response letter that explained my COVID hardship qualification. It also helped me determine which years I needed to amend. Saved me from freaking out thinking I needed to go to tax court!

I wanted to follow up about the taxr.ai recommendation. I was super skeptical but decided to try it with my own COVID distribution mess. Uploaded my CP2000 notice and some other documents and was honestly shocked at how helpful it was. The system identified exactly which provisions of the CARES Act applied to my situation and generated a response letter explaining why my distribution qualified. It also flagged that I needed to file both Form 8915-E and amend my returns to properly report the income. I'm actually getting some money back now because I originally paid tax on the full amount in one year instead of spreading it out. Wish I'd known about this sooner!

Just jumping in to say - if you need to actually speak with someone at the IRS about this (which might be a good idea), good luck getting through their phone system! After the notices started coming for my mom's similar situation, we spent WEEKS trying to reach a human. Finally found this service called Claimyr (https://claimyr.com) that got us connected to an IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was able to put a temporary hold on our case while we gathered the right documentation and submitted the 8915-E form. Saved us a ton of stress about penalties accumulating while we sorted everything out. No need for tax court at all in our case!

I need to publicly eat my words about Claimyr. After calling the IRS 23 times about my COVID distribution issue (not exaggerating), I broke down and tried the service. Got connected to an IRS agent in about 12 minutes. The agent was actually super helpful and confirmed I didn't need tax court at all - just needed to respond to the notice with an explanation letter and file the 8915-E form. She even put notes in my account about our conversation. Saved me hours of frustration and probably a lot of penalties since I was about to miss my response deadline. Sorry for being so skeptical before!

You should check if you still have time to make the election to spread the income. IRS rules for COVID distributions required you to elect this treatment on your 2020 return originally. There might be relief provisions available, but typically these elections need to be made timely. Also, check if the withdrawal truly qualifies as COVID-related under the CARES Act. There were specific eligibility requirements - either you/spouse/dependent diagnosed with COVID, or you experienced adverse financial consequences due to specific COVID-related circumstances. You'll need to certify this.

Has anyone actually had penalties waived for this exact scenario? I made almost the same mistake - took $15,000 from my 401k in 2020 due to COVID but didn't report it properly. The IRS wants like $4,200 in penalties and interest now.

I went through almost this exact situation! Took a COVID distribution in 2020, didn't get proper documentation from my plan administrator, and completely botched the tax reporting. The IRS sent me a CP2000 notice that had me panicking about tax court too. Here's what actually worked: I responded directly to the notice with a detailed explanation letter stating it was a qualified COVID-related distribution under the CARES Act. I included Form 8915-E (even though it was late) and documentation of my COVID-related job loss. I also filed amended returns for 2021 and 2022 to properly spread the income over three years. The whole process took about 4 months, but the IRS accepted my explanation and adjusted my account accordingly. I even got some refund money back from overpayment in 2020. No tax court needed - that's really only for when you've exhausted all administrative remedies with the IRS first. Make sure you respond to whatever notice you received within the timeframe they give you (usually 30 days). The key is documenting that your distribution truly qualified under COVID hardship rules and explaining the reporting error was unintentional.