Reversing the 2011/2012 Roth Conversion election
A client converted $800,000 from an IRA to a roth in 2010, electing to pay the taxes in 2011/2012. They now beleive they may have been better off to pay the taxes in 2010. If they were to file an amended return, what would the late payment penalties be? Is there anything else the client should consider?
Permalink Submitted by Alan Spross on Wed, 2011-07-20 19:29
The late payment penalty is 1/2 of 1% per month on the unpaid amount, in this case the additional amount of taxes due for an 880k conversion reported in 2010 when opting out of the 2 year deferral. The clock would start on 4/18/2011.
Permalink Submitted by Denise Appleby on Fri, 2011-07-22 13:46
Just a reminder–The election becomes irrevocable after the due date for filing the tax return for 2010
Permalink Submitted by Dennis Prout on Mon, 2011-08-01 13:22
Does the due date of the return include extensions?
Permalink Submitted by Alan Spross on Mon, 2011-08-01 17:02
Yes.
The deadline is the “extended due date”. The extended due date of 10/17/2011 applies if the taxpayer does ONE of the following:
1) Files a timely extension by 4/18/2011
or
2) Files a timely return by 4/18/2011
If the taxpayer does neither of the above, there is no extended due date, just the original due date of 4/18.
Permalink Submitted by JD Miller on Mon, 2011-10-10 19:09
Do you have a citation for the deadline being the “extended due date”?
That’s what I want it to be, but Code Section 408A(d)(3) reads “Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.”
It makes no mention of “including extensions”.
Permalink Submitted by Alan Spross on Mon, 2011-10-10 19:56
Scroll down from d(3) to d(7), which indicates that the due date is considered the due date with extensions.
Also see IRS Regs, Q&A #6:
http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_…
Taxpayer does not have to file an extension if the return is filed by the normal due date. The extended due date applies in this case by simply filing an amended return with notation “filed pusuant to Sec 301.9100-2” on the return. See Pub 590, p 31.
And if the 10/17 extended due date is also missed, there might still be relief through filing a PLR request if there is unique extenuating circumstances. This is sometimes referred to as a “super extended deadline”.
Permalink Submitted by JD Miller on Mon, 2011-10-10 20:11
Thanks, Alan.