Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
IRS wants me to submit Form 8606
Posted by: Looking4ward, September 3, 2017 01:43AM
In 2015 I converted $11K of an existing tIRA to a new Roth IRA account.

In early 2016 I recharacterized the entire amount (then $11,028) back to the original tIRA.

This year, the IRS sent me a letter claiming I owed $1,413 in taxes and penalties for the 2015 IRA distribution of $11K.

I responded with copies of 1099-R's and 5498's for both 2015 and 2016 which clearly show the tIRA to Roth activity and then the Roth to tIRA activity with "R" in box 7 of the 2016 1099-R. I included a detailed explanation of the conversion and recharacterization.

In response, the IRS has now asked that I "complete Form 8606, Nondeductible IRA's Part II, to determine the taxable portion of your Roth IRA distribution" or pay the previously calculated taxes and penalties.

But since the 8606 Part II instructions are to exclude any amount that was recharacterized, it appears I would simply be entering $0 for lines 16, 17, and 18.

Is that correct?


Re: IRS wants me to submit Form 8606
Posted by: Alan S., September 3, 2017 04:02AM
Whoever is processing these requests at the IRS has not been trained. What you already provided the IRS was sufficient. While you should have provided the explanatory statement with your 2016 return, you have now provided them with all that info.

So the question now if whether to send more copies of what you already sent, or humor them and send in a bogus 8606 per their request that conflicts with the 8606 Inst.

Or you might do both, sending in the 8606 and another copy of what you sent before.

Pretty frustrating, I know.

Re: IRS wants me to submit Form 8606
Posted by: Looking4ward, September 3, 2017 04:22AM
Thanks. Today I prepared a package that includes all the information I've previously sent them (copies of all 1099-R's and 5498's with a detailed description of the transactions and the statement that none of them were taxable events) as well as an 8606 with $0 in lines 16, 17, and 18.

Before I send it back I'm going to call them next week and see if I can verify what their actual understanding is at this point.

Re: IRS wants me to submit Form 8606
Posted by: BruceM, September 26, 2017 08:44PM
Alan/LF

Question

If LF does the Roth conversion in 2015 and didn't recharacterize until sometime in 2016, wouldn't his 2015 return....filed sometime between Jan 2, 2016 and April 18, 2016, have to show the 1099-R conversion as income along with a completed 8606, and then at some point after the recharacterization, file an amended return?

Or are you saying that as long as LF recharacterizes prior to the filing deadline of April 18 (excluding extensions?) then he need not file the 8606 and need not include the 1099-R conversion amount as income....in short, treat it as though it had not happened, and just provide an explanation with his 2015 return?

BruceM

Re: IRS wants me to submit Form 8606
Posted by: Alan S., September 26, 2017 11:26PM
Bruce, the latter. An explanatory statement should be included indicating the date and amount of the conversion and the date and amount recharacterized along with the value when the recharacterization transfer was made.

Of course, if the return has already been filed that included the conversion income, then a 1040X will be required.


Re: IRS wants me to submit Form 8606
Posted by: BruceM, September 27, 2017 04:08PM
Alan
Hmmm, just learned something!

As always, thanks

BruceM



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