401K rollover pre-tax to TIRA after-tax to cash

Submitted by Holly Edwards on Sun, 2017-12-10 22:52

My company 401K allows in-service rollovers. In 2015 (when over age 59 1/2) I rolled over the $800K pre-tax amounts to a TIRA and 3 annuities which are considered still part of my retirement plan. This left $8K after-tax. Rather than roll it to a Roth IRA, I took it in cash and my plan advisor and the 1099R both said taxable amount is zero. However I have been fighting with the IRS who wants me to pay tax on it and now I’m at the petition to tax court step. Per IRS Notice 2014-54 I believe I owe no tax. On my amended 1040 I put the $8K on line 15a and $0 on line 15b per my 1099R and included a letter explaining it was a rollover. Should I have put the whole rollover amount in line 15a and $0 in line 15b and noted “Rollover”? I believe I am right but I can’t understand how to prove it to them.



Submitted by Holly Edwards on Sun, 2017-12-10 23:11

I should have added that I did not include a form 8606 because I did not think it applied. 

Submitted by Alan - IRA critic on Sun, 2017-12-10 23:31

Didn’t you get two 1099R forms?  One coded G for the direct rollover and another coded 7 for the distribution of 8000 with 0 in box 2a? Yes, form 8606 does not apply here. You should have reported both distributions on line 16, not 15.

Submitted by Holly Edwards on Mon, 2017-12-11 14:55

Yes I received 2 1099R forms. One coded G for the $800K where box 5 is zero, One for the $8K coded 7 where box 5 contains the same $8K. Thank you for the line 16 heads up. So following the 1040 instructions for line 16, I should have put $808K in 16a then subtracted the $8K box 5 as not part of the rollover then subtracted the $800 rollover leaving zero for 16a.     

Submitted by Alan - IRA critic on Mon, 2017-12-11 15:48

Yes, that is correct.  If the IRS looks at the 8k 1099R, there is no reason for them to think any of that 8,000 is taxable. By having used line 15, the IRS may be thinking that you rolled the 8,000 into your TIRA and somehow triggered the basis recovery rules from an IRA distribution, even though that conclusion does not add up either. Correcting this to line 16 should resolve this..

Submitted by Holly Edwards on Mon, 2017-12-11 16:34

I did not attach either 1099R to my amended return so I’ll attach both to a new amended return with line 16 properly filled out which I hope will finally resolve this. Thank you so much Alan for your help!  

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