CP2000 - "Retirement Income" but was converted

Forum|Forum|1 year ago
October 17, 2024
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Hi - I received a CP2000 from the IRS stating that I have "retirement income". This was $6K that was placed into a traditional IRA and then quickly moved to a Roth IRA. What do I need to send to the IRS to show that it was converted?

I did have an 8606 as part of my TurboTax filed return. It shows $6K in line 1 and $6K in line 2. I think the line 2 is incorrect as the traditional IRA does not have any balance. But then wouldn't TurboTax have calculated the tax impact (incorrectly)? Wondering why the IRS is showing that I need to pay more taxes. (Over $2K more)

Opus 17

Employee

In the year that you did this, did you report a non-deductible IRA contribution using form 8606? If not, the IRS will assume the rollover was from a deductible IRA account and want the tax. Was this your only balance in a traditional IRA (combining all balances in any traditional IRA accounts at different brokers into one balance)?

daydreamerAuthor

Yes, 8606 shows $6K as non-deductible (Line 1) But the form also shows another $6K on line 2 (which I think is incorrect as I have no ongoing balance in a Traditional IRA.

8606 was part of my return and now I have a notice saying that i did not report the $6K as income but others have (referencing Vanguard 1099-R).

Shouldn't the 8606 form have shown that it wasn't income?

Opus 17

Employee

Do you have suggestions, @dmertz ?

@daydreamer ,

I can't explain line 2 of form 8606 unless you told turbotax something incorrect. The program won't know about a prior non-deductible basis unless you told it yourself, or carried that information over from a prior year. Did you have a form 8606 in the previous year?

Then, if you did the conversion, that would be reported on line 8. Line 11 is the non-taxable portion of the conversion, if you did a true backdoor Roth, that should be the full $6000, and line 14 (your new basis in traditional IRAs going forward) would be zero (unless you had a prior basis you did not convert).

However, you would also get a 1099-R for the distribution of $6000 from the traditional IRA and that also needs to be reported. It would show up on line 4a as the total amount of distribution, and the taxable amount (which should be zero) will be on line 4b. If you didn't report the 1099-R, and show the paperwork that it is not-taxable, the IRS is allowed to assume it was taxable and send an assessment notice (although you can rebut this with a letter if you get the paperwork straightened out.)

It's difficult to evaluate without being able to see your tax return. You can try calling Turbotax customer support. Their current policy is that if you need tax help (instead of technical help with the program) they want to to pay extra, but they might be more accommodating at the slow season. Or you can work with us here to help us understand what you did, but we can't see your return so you will have to help us out.