2010 Form 8606 – Part IV Completion
The IRS has had numerous delays issuing Form 8606 to incorporate all the changes with respect to in plan conversions, direct QRP to Roth IRA conversions, 2010 conversions and most notably, the income acceleration feature for those that did 2010 conversions and also took a Roth distribution. The 8606 Inst refers to the income acceleration requirement in more than one place, yet the actual completion instructions do not appear (at least to me) to produce the amount of taxable income to reflect acceleration. This is all done in Part IV, lines 26-36. The problem appears to be that line 32 will produce a 0 in most cases and line 33 will also be 0, ie no income acceleration. Does anyone see this differently?
Permalink Submitted by Edward Czapor on Tue, 2011-01-11 15:28
Alan, can you provide an example with some figures. I just ran a simple 2010 conversion with no basis in the TIRA, and no previous Roths or conversions. If half the conversion was distributed in 2010, then the conversion tax on that amount correctly ends up on line 36.
Ed C.
Permalink Submitted by Alan Spross on Tue, 2011-01-11 19:03
Ed, that would be a good basic example, and also the correct result.
Did you use a tax program? On what line #s does your distribution amount appear? My difficulty is matching the specific 8606 Inst for various lines and am not getting that correct result.
Permalink Submitted by Edward Czapor on Tue, 2011-01-11 20:13
I did not use a tax program. Assume 12k converted in 2010, with following line entries:
Line 16 12k
Line 17 0
Line 18 12k
Line 20a & 20b 6k
Line 26 6k
Line 28 6k
Line 29 0 (no regular contributions)
Line 30 6k
Line 31 0 (Note that instructions state to enter total of all Roth conversions, but for a 2010 conversion you would make no entry unless you checked the box to report conversion in 2010.)
Line 32 6k
Line 33 6k
Line 34 0
Line 36 0
Permalink Submitted by Edward Czapor on Tue, 2011-01-11 20:16
Correction:
Line 36 is 6k not zero.
Permalink Submitted by Alan Spross on Tue, 2011-01-11 21:22
Thanks, Ed. I appreciate your help with this.
Your note re line 31 was what I had missed and caused my numbers to zero out.
What I originally wanted to test was whether the acceleration would capture the distribution of prior year conversions or not, but it appears that ordering rules are being allowed here, ie if you have a balance of pre 2010 conversions and take a distribution, acceleration will not be triggered until they are exhausted and you then tap 2010 conversions. That was questionable from an intuitive standpoint, ie would a taxpayer be allowed to convert and defer if they also distributed conversions done in earlier years, and the answer is apparently yes. Seems like this is analagous to an allowed wash sale. In other words, you are allowed to convert and defer when you intend to tap your Roth for earlier conversions and this allows you to substitute the new conversion to replace the earlier conversion which you can take out without acceleration of the 2010 conversion income.
The 2011 and 2012 versions of the 8606 will have to credit the income reportable from a deferred 2010 conversion if acceleration took place in a prior year.
Will be interesting to see how the software programmers do with this new can of worms.
I edited the original post title to eliminate the allegation of error in the form.