Correcting 8606 errors
In preparing for a Roth conversion, client discovered that the first 8606 filed in 2001 incorrectly reported $5K of pre-2001 contributions as after-tax, thus establishing an overstated basis. Subsequent year filings properly reported additional contributions, but added them to the incorrect basis. Can the correction be made by filing a single new 8606, using the explanation page to detail all after-tax contributions for each year? Or, is it necessary to file a corrected 8606 for each year?
Thanks-
Permalink Submitted by Alan Spross on Fri, 2010-09-24 18:57
Probably safer to amend all of them, or at least the incorrect year and the most recent year’s 8606. By explanation page, are you referring to the 1040X, which is not needed in this case UNLESS you plan to use the explanation section? I assume there have been no recent distributions or conversions that used an overstated basis.
Permalink Submitted by Paul Monaghan on Mon, 2010-09-27 16:05
There have been no distributions or conversions and I agree that a 1040X is not required. I was referring solely to an 8606 explanation.
While I don’t see a reference to an ‘explanation sheet’ on the actual 8606 form or instructions, TurboTax has a “Traditional IRA Basis Worksheet that indicates “If the basis has been adjusted, an explanation statement is required.” It also provides a ‘QuickZoom’ to a freeform “Explanation Statement”. I was considering mailing a revised 2009 8606, and including the TurboTax worksheet and explanation statement detailing the correct adjustments for each year since 2000. Do you still think it’s safer to re-file each year’s form?
Permalink Submitted by mk foss on Mon, 2010-09-27 17:47
Form 8606 is a stand-alone form which means you can sign it at the bottom and file it even when you’re not filing a tax return. At a minimum I’d file a separate Form 8606 for each year that you forgot to report a contribution with an explanation. For instance if you were correct up through 1989 but forgot to report a 2000 contribution – I’d file a 2000 Form 8606 with an explanation attached. Then if you forgot to report a 2005 contribution, I’d file a 2005 Form 8606 updated for the previously unreported 2000 contribution along with an explanation.
There is a penalty for failure to file Form 8606 or to claim basis when Form 8606 wasn’t filed – so be sure to request that any penalties be waived when you file the late forms.
Permalink Submitted by Paul Monaghan on Tue, 2010-09-28 18:01
Thanks. I’ve completed all the forms and am ready to mail- but to where? The IRS web sites give mailing instructions for several forms, but I cannot find this one. Should the updated forms be sent to the same address listed for 1040s?
Thanks again-
Permalink Submitted by Alan Spross on Tue, 2010-09-28 18:39
Yes, same address.
Permalink Submitted by mk foss on Tue, 2010-09-28 18:39
Yes. Send it to the address for Form 1040.
Permalink Submitted by Ben Ben on Thu, 2023-12-28 00:48
Nice blog post. But what happened if i made non deductible IRA contribution of $5,000 in March 2009 for the prior year 2008. BUT my genius accountant didn’t fill the 8606 for 2008. He then filled a 8606 for $6,000 in 2009! How can that be corrected? The amounts dont match & the year doesnt match
Permalink Submitted by Alan - IRA critic on Thu, 2023-12-28 02:39
At this point, I would just ignore it. You have 1,000 in overstated basis which is probably not worth trying to correct. But if you want to, I would just reduce your basis by 1000 the next time you would otherwise file an 8606. The IRS will not even notice.