Here’s a fun case. Facts are:
1. Client makes Roth contribution in April 2015 for tax year 2014 prior to doing taxes.
2. Client is phased out, therefore, requests Schwab code contribution for 2015 tax year. Schwab does.
3. Client phased out again in 2015. This time recharacterizes Roth contribution as deductible T IRA contribution (No income limitations due to no employer plan). Recharacterization processes beginning 4/18/16 and settles on 4/21/16. (filing deadline was 4/18 that year not counting extensions)
4. Client receives CP2000 in June 2017 disallowing the deductible contribution.

(2015 1040 claimed T IRA deduction, 2016 1040 showed full amount on line 15a, none on 15b)

Client received following tax forms from Schwab:
1. 2014 5498 showing $0 Roth contributions
2. 2015 5498 showing $6500 Roth contribution.
3. 2016 1099 showing gross dist of $6500, $0 taxable, Code R
4. 2016 5489 showing box 4 $6500 recharacterized contributions (box7 IRA)

I believe the 5498s and 1099s to be correct, and the client/tax preparer should explain to the IRS that forms spanning multiple tax years should be considered. Agreed?

Questions:
1. Recharacterizations can occur up until the tax filing deadline including extensions. Does the tax payer actually have to file for an extension of his 1040 in 2015 in this case, or
2. Should Schwab send a corrected 5498 changing the $6500 recharacterization to tax year 2015? Schwab says “no” forms are correct as issued.

If anyone feels like sharing their expertise here, it would be much appreciated!