<p>OK, got the letter yesterday, another interesting repercussion of receiving income via the 1099M and reporting it on Line 21. </p>
<p>The change the IRS made was in the calculation of the Standard Deduction for a Dependent. I included the REU and WS income in the calculation and came out with a number larger than the SD, so I used the SD amount. The problem is, that when doing the worksheet for the SD, Line 1, Earned Income is:</p>
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<p>So, Line 21, where the bulk of her income came from was not included by the IRS. Therefore, they only counted the relatively small WS income and came out with a reduced SD. And since this smaller SD is subtracted from the AGI WITH the REU income, there is a large tax due.</p>
<p>The IRS won’t talk to me until D2 gives her authorization to do so (she’s off on spring break), so…to be continued.</p>