Accidentally paid taxes on IRA Conversion in 2010 and 2011
I rolled over a traditional IRA to a Roth IRA in 2010 in order to take advantage of spreading the taxes out over 2 years. I mistakenly paid half of the taxes in 2010 and the other half in 2011 instead of half in 2011 and half in 2012. I got a notice from the IRS regarding my 2010 return of not declaring income (since I only did half the amount). I wrote them a letter explaining the situation and the have sent me a letter back asking me to fill out form 8606. I am very confused by this from and not really sure why it needs to be filled out. I am afraid it will change my status of electing to spread the taxes over 2 years. Any help would be highly appreciated or any comments from people that made the same mistake.
Permalink Submitted by Alan Spross on Tue, 2012-07-17 19:52
You needed to attach an 8606 with your 2010 tax return as you would for any Roth conversion. That year’s edition had a box to check if you opted to pay all your taxes in 2010. Otherwise, you would default to splitting the income between 2011 and 2012. While the IRS has not clarified this, your failure to file an 8606 should not change the default rule. The IRS should allow you to amend your return for 2010 including an 8606 on which you do NOT check the box on line 19. You should then get a refund for your 2010 taxes.
In addition, what you are doing is splitting the income between 2011 and 2012, not the actual taxes. Your 2010 return and 8606 should result in no conversion income for 2010, but will show the amount of taxable income which is to split between 2011 and 2012. Perhaps your 2011 return is correct if you showed half the conversion income in 2011 and included that in your AGI and taxable income.