2011 Roth Conversion
How should I respond to the following IRS notice based upon the following facts:
2011 IRA distribution $760,000
2011 ROTH conversion 550,000
in 2011 ROTH recharacterization 550,000
taxable distribution on 1040 $210,000
IRS notice is showing the $550,000 as additional taxable income. How do I respond?
Do I need to prepare form 8606?
Thanks
David
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Permalink Submitted by Alan - IRA critic on Tue, 2013-10-29 17:05
If you fully recharacterized the Roth conversion back to your TIRA account, only the 210k is taxable. Your 2011 return should have included an explanatory statement regarding the date, amount, and value of the recharacterization. Form 8606 should not be attached if you recharacterized the entire conversion, but if you have any IRA basis it should be attached to calculate the portion of the 210k distribution that is taxable. Sounds like you have no basis, therefore no 8606. Suggest you respond with the explanatory statement and a copy of both the 1099R reporting the recharacterization transfer and the 5498 reporting receipt of that transfer back in your TIRA. Actually, this type of IRS error is fairly common and due to their failure to match up the recharacterization 1099R issued in Jan, 2013 with the 2011 1040.