Reporting of Roth conversion
Taxpayer A has a traditional IRA, value $10x, with zero basis, and converted $x of it to a Roth in 2010. He is electing to include the entire $x in 2010 (since he wants to convert some each year, to stay in a low bracket). The software (Block, formerly TaxCut) shows $x on the Form 8606 (on lines 16, 18 and 19), and carries the $x taxable amount to Form 1040, line 15b.
Taxpayer B’s income for 2009 was too high to contribute to a Roth IRA. Early in 2010, she contributed $5,000 to a traditional IRA for 2009. This was her only traditional IRA, so she had a $5,000 basis. Immediately thereafter, she converted it to a Roth. The taxable amount is zero. While it doesn’t make any difference, she is electing to include the taxable amount in 2010. The same software shows $5,000 on Form 8606, lines 16 and 17, and zero on lines 18 and 19. It then carries the $5,000 conversion to Form 1040, line 15a, and the zero taxable amount to line 15b.
Why does the full amount of the conversion appear on line 15a of Form 1040 for taxpayer B, but leave that line blank for taxpayer A?
Permalink Submitted by Alan Spross on Sun, 2011-03-27 17:37
Bruce.
I don’t know WHY, but the IRS instructions for both lines 15 and 16 generally call for leaving line a blank. For example, if a taxable pension is reported on both 16a and 16b, IRS free file will reject an e file for reason “same amount cannot appear on 16a and 16b”. To clear the reject, you have to eliminate the line a entry.
But there are exceptions for IRAs. Page 22 of IRS 1040 booklet calls for leaving line a blank, but then lists 4 exceptions. Exception 2 says to show the distribution on 15a and use Form 8606 to determine the amount on 15b. Same instuctions apply at least as far back as 2008. (8606 instructions for conversion reporting never mentions line 15a of Form 1040, just line b.)
Therefore, your two taxpayers should both have amounts on 15a, even though for taxpayer A the amounts are the same for lines a and b. Looks like Block is incorrect for this taxpayer because they did not recognize Exception 2.
As for all the IRS exceptions, my guess is that their antiquated computer system is being patched to try to keep up with all the recent portability improvements. When Form 8606 provides a complete accounting for both lines a and b, I don’t understand why 15a is needed in either case, but Exception 2 wants 15a completed.