The-Tax-Lady
Level 9

I had many COVID related distributions in 2020 and the software performed surprising well.

The main question you are missing is "Was it a COVID Distribution as defined by the IRS for TY2020.

If yes, both individuals are eligible for an exclusion of the 10% penalty on a maximum distribution amount of 100,000 each, period. Did they spread the tax repayment over the 3 years?

I agree, it sounds like you have data entry errors on the worksheet. It also sounds like the IRS is correcting those errors, as it is doing in so many other areas, and reducing the tax liability based on those corrections.

You can always save a copy and try to amend the original return, as a way to discover where you made an error, if you're not seeing it in the original return.

The IRS wants LESS money? They're usually pretty sure in those cases and unlikely to be returning for more money due to an error in their calculations, so "Stay Calm and Carry On".

Be glad you didn't cost your client money, due to a possible data entry error, that you would have to fix by amending the return and explaining the error yourself. Worst case scenario, nobody realizes there is a mistake and you just created a tax liability that cost your clients a lot of money.