Hi,
Here are a couple options.
1. The $1 on Schedule D does work as an amount on line 7 of the 1040 is one of the items that triggers an exception to the business rule. Here's the text of the business rule. You can back out the capital gains distribution by entering a negative $1 with the description "BR1" on Schedule 1, line 8 to offset that income. If you talk to your software provider's customer service, they may present this as an option (even though IRS has not officially published this workaround anywhere).
Form 1040, 'WithholdingTaxAmt' must be less than the sum of the following:
['WagesSalariesAndTipsAmt' and 'TaxableInterestAmt' and 'OrdinaryDividendsAmt' and
('IRADistributionsAmt' or 'TaxableIRAAmt') and ( 'PensionsAnnuitiesAmt' or
'TotalTaxablePensionsAmt' ) and 'SocSecBnftAmt' and Schedule 1 (Form 1040),
'UnemploymentCompAmt' and ( all 'OtherIncomeAmt' in [OtherIncomeTypeStatement] ) and ( all
Schedule C (Form 1040), 'TotalGrossReceiptsAmt' )] unless one of the following is true: (1) Form
1040, 'CapitalGainLossAmt' has a non-zero value; (2) Schedule 1 (Form 1040),
'OtherGainLossAmt' or 'RentalRealEstateIncomeLossAmt' or 'NetFarmProfitLossAmt' has a nonzero
value; (3) Combat Pay has been excluded from wages.
2. The IRS has an excel sheet of known issues at https://www.irs.gov/e-file-providers/known-issues-and-solutions and it has a solution for this business rule. The biggest issue with this method imo is at the state level for those states that are conforming to the unemployment exclusion.
Issue: Business rule F1040-071-05 will trigger if the taxpayer’s only source of income is Unemployment income and there is withholding being claimed. The business rule will reject returns when the income is zeroed out due to the unemployment compensation exclusion.
Solution: In order to bypass the rule, do not claim the unemployment compensation exclusion if the unemployment income is less than the standard deduction. Use the standard deduction to bring the taxable income to zero.
