My name is Lydia Greene. I purchased Ed Slott’s PBS program and found this discussion forum on his website as a resource.

I was hoping that someone may be able to help me I have a question ….

My Daughter who is HH with 3 children received an inheritance from my Father in laws Simple IRA.
My daughter took the full distribution (which was only the taxable portion) in 2013 so there would be no penalties for not taking mandatory withdrawals.
My daughter did not report the income on her tax return.
My daughter received a notice from the IRS

The IRS added the income and took about $4000 worth of credits away for the kids leaving a $3800 tax bill, due to the reduction of her credits.
The IRS reduced my Daughters credits as follows
Child and Dependent Care Credit
Child Tax Credit
Earned income credit.

I do not think this can be considered her earned income and impact her child care credits. However, trying to figure this out on my own looking at publications 509A and 509B it is not clear how to report, address or file an amended return if one is necessary.

Based on the facts presented here, does this distribution as an inheritance impact her credits as listed above.

Your feedback would be appreciated. Thank you