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While preparing an amended 2005 return I found that my client had included in his 2005 income the return of excess contributions to his 401(k) in 2004. Obviously this distribution should have been included on an amended 2004 return. The 1099R was coded P but the client did his own return and didn't realize that he should not include it in 2005 income.

My question is should I remove the excess contributions from his 2005 return since it needs to be amended for an entirely different reason and amend his 2004 return?

If I do that he will get a refund for 2005 and will owe for 2004. Evidently the IRS isn't going to catch his error - or at least doesn't want to pursue it.

Should I just leave it the way it is? He did pay tax on the returned contributions although not in the correct year.

Thanks in advance for your advice.

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