8606 Corrections (multiple years) - recent experiences?

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TravelGeek
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8606 Corrections (multiple years) - recent experiences?

Post by TravelGeek »

I am getting ready to do my first-ever Roth conversion.

My IRA has only annual non-deductible contributions (plus gains) going back to 2007 when I had the brilliant idea of opening an IRA for non-deductible contributions but didn't know about the backdoor Roth method. No withdrawals, no rollovers, no conversions.

I was looking at my most recent Form 8606 and decided to reconcile the Total Basis (Line 14) with the actual sum of non-deductible contributions from my Vanguard records. It was off by $9000. Sigh!

Going through all my tax returns since 2007, all processed with TurboTax, I verified that the Form 8606 was filed every year. But in the third year of my IRA adventure (2009) the Line 2 amount (basis carried over from previous year) was $0, essentially wiping out the combined $9000 basis from 2007 and 2008. No idea how that happened; I thought TT does this auto-magically, and I clearly didn't pay enough attention when reviewing the forms and probably didn't even understand the purpose of Form 8606 back then. It is what it is, but now I need to fix it or pay taxes on those extra $9000.

I know I can download historic 8606 forms from the IRS website and filling them out is pretty simple. I can also explain in a short letter what happened. Previous threads have helped here. (e.g., this and this).

Some questions:

- does anyone know how long it would likely take the IRS to process the corrected Forms 8606, and will I receive a notification when it's done?

- any reason to not go forward with my IRA Roth conversion at this time and wait until this is resolved? (obviously, I would want to file my tax year 2020 Form 8606 with the corrected basis)

- I read somewhere that as of 2019 (?) the IRS can charge a $50 penalty for corrected Forms 8606s. Anyone have experience with that? The Instructions for 8606 only mention a $50 for failure to file the form and $100 for overstating non-deductible contributions. I did neither.
livesoft
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by livesoft »

I never received a notification, so I don't think you will get one either. I never was asked to pay any penalty or fee. My traditional IRA doesn't exist anymore as it was all converted a number of years ago
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Katietsu
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Katietsu »

Your concerns are appropriate based on the IRS publications. But, in reality, I have never heard of anyone who was charged a penalty. Processing of Form 8606 is seldom acknowledged. And if you want to do your conversion in 2020, do not let this snafu stop you.

And I do not think there was a back door Roth for anyone in 2007. Then, generally speaking, if your income was too high for a direct Roth contribution, it was also to high for a conversion.
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Duckie
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Duckie »

Katietsu wrote:And I do not think there was a back door Roth for anyone in 2007. Then, generally speaking, if your income was too high for a direct Roth contribution, it was also to high for a conversion.
That's correct. The backdoor Roth method only came into existence in 2010 when the $100K income cap on conversions was lifted.
BruinBones
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by BruinBones »

Others are correct. I submitted a batch of corrected forms 8606 for multiple years with a letter explaining the reason for submission. You send them to the IRS tax center for your region that you would have sent a hard copy tax return. Other than the Certified Mail receipt, I never did receive an acknowledgment from the IRS, but nor did I receive a penalty.
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TravelGeek
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by TravelGeek »

Duckie wrote: Tue Dec 22, 2020 9:29 pm
Katietsu wrote:And I do not think there was a back door Roth for anyone in 2007. Then, generally speaking, if your income was too high for a direct Roth contribution, it was also to high for a conversion.
That's correct. The backdoor Roth method only came into existence in 2010 when the $100K income cap on conversions was lifted.
Thanks for the correction. I suspect I didn’t learn about it until 2014 or so when I stumbled upon this site. And then I didn’t want to pay taxes on the conversions (prime earning years) and delayed it until early retirement.
BruinBones wrote: Tue Dec 22, 2020 9:49 pm Others are correct. I submitted a batch of corrected forms 8606 for multiple years with a letter explaining the reason for submission. You send them to the IRS tax center for your region that you would have sent a hard copy tax return. Other than the Certified Mail receipt, I never did receive an acknowledgment from the IRS, but nor did I receive a penalty.
Thanks to you and everyone else for sharing their experiences. I’ll created the corrected 8606s tomorrow and move forward with my Roth conversion.
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Harry Livermore
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Harry Livermore »

BruinBones wrote: Tue Dec 22, 2020 9:49 pm Others are correct. I submitted a batch of corrected forms 8606 for multiple years with a letter explaining the reason for submission. You send them to the IRS tax center for your region that you would have sent a hard copy tax return. Other than the Certified Mail receipt, I never did receive an acknowledgment from the IRS, but nor did I receive a penalty.
Same here. We did a big conversion that first year they lifted the income restriction (and also let you spread the tax over 2 tax years) and I realized that during my early years when I contributed to a nondeductible IRA, I failed to file any 8606s at all! This would have dated from back in the late 80-early 90s, even a few years for my wife. Our accountant sent corrected 8606s, certified mail receipt, with no acknowledgment. It's been about 10 years at this point...
Cheers

ETA: As noted below. Correct basis was noted on that year's 8606.
Last edited by Harry Livermore on Wed Dec 23, 2020 2:33 pm, edited 1 time in total.
diy60
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by diy60 »

Harry Livermore wrote: Wed Dec 23, 2020 9:11 am
BruinBones wrote: Tue Dec 22, 2020 9:49 pm Others are correct. I submitted a batch of corrected forms 8606 for multiple years with a letter explaining the reason for submission. You send them to the IRS tax center for your region that you would have sent a hard copy tax return. Other than the Certified Mail receipt, I never did receive an acknowledgment from the IRS, but nor did I receive a penalty.
Same here. We did a big conversion that first year they lifted the income restriction (and also let you spread the tax over 2 tax years) and I realized that during my early years when I contributed to a nondeductible IRA, I failed to file any 8606s at all! This would have dated from back in the late 80-early 90s, even a few years for my wife. Our accountant sent corrected 8606s, certified mail receipt, with no acknowledgment. It's been about 10 years at this point...
Cheers
Ditto for me as well, about a dozen, some dating back a couple of decades. No acknowledgement from the IRS and no penalties. I've been carrying on with Roth conversions for a few years now.
MarkNYC
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by MarkNYC »

I don't think submitting corrected/amended Forms 8606 for years 2009-2019 is the right way to proceed. Generally, when a taxpayer wants to change an amount on an originally filed tax return, an amended return is required. Form 8606 instructions indicate the form can be filed by itself, but only when an original 1040 is not required. I don't think the IRS will process a change to an amount on an original return based on a corrected form that is submitted by itself - without an amended return 1040-X. In this situation, most of the years involved (2009-2016) cannot be amended since they are closed years due to the 3-year statute of limitations. So, what to do?

The IRS has acknowledged that a taxpayer is allowed to adjust a carryover in a closed year if it affects an open year. Unfortunately, the cases, rulings, and IRS instructions are silent on what procedure should be used by the taxpayer when they realize they understated a carryover in a closed year. If it was me, I would to the following.

List the correct IRA basis carryover amount on the current-year Form 8606 filed with the 1040, and attach a statement explaining what happened. As part of the statement, I would attach a copy of the originally filed Form 8606 for years 2008 and 2009 showing the error in the carryover amount.
MarkNYC
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by MarkNYC »

Harry Livermore wrote: Wed Dec 23, 2020 9:11 am
BruinBones wrote: Tue Dec 22, 2020 9:49 pm Others are correct. I submitted a batch of corrected forms 8606 for multiple years with a letter explaining the reason for submission. You send them to the IRS tax center for your region that you would have sent a hard copy tax return. Other than the Certified Mail receipt, I never did receive an acknowledgment from the IRS, but nor did I receive a penalty.
Same here. We did a big conversion that first year they lifted the income restriction (and also let you spread the tax over 2 tax years) and I realized that during my early years when I contributed to a nondeductible IRA, I failed to file any 8606s at all! This would have dated from back in the late 80-early 90s, even a few years for my wife. Our accountant sent corrected 8606s, certified mail receipt, with no acknowledgment. It's been about 10 years at this point...
When a taxpayer files a 1040 that fails to include Form 8606 to report a nondeductible contribution for the year, and later on files a delinquent Form 8606 to fix the mistake, that is not filing a "corrected Form 8606". It is a delinquent original Form 8606. A corrected 8606 is used to correct amounts on an originally filed 8606.

The Form 8606 instructions indicate the form can be filed by itself but only in a situation where there is no requirement to file a Form 1040 for that year. There is some anecdotal evidence that some IRS service centers may accept and process a delinquent original 8606 separately filed without an amended return, but I've not seen any evidence that IRS will change an amount on an original tax return by accepting and processing a corrected 8606 filed by itself (no 1040-X) and especially if the change request is for a year that is closed due to the 3-year statute of limitations.
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TravelGeek
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by TravelGeek »

Thanks, MarkNYC. It seems there are a lot of reports here (and elsewhere such as the Intuit/TT forum) of people just submitting their corrected 8606s. I haven't seen any anecdotal reports of people just correcting it with their next return, but I will admit that was my first thought of corrective action when I discovered the problem (and before researching it).

Wouldn't people who submitted standalone 8606 forms have received some sort of rejection notice if the IRS wasn't willing to process them without 1040X?

Perhaps the safest way is belt and suspenders - file the corrected 8086s and then also include a note with the correct 2020 8086?
MarkNYC
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by MarkNYC »

TravelGeek wrote: Wed Dec 23, 2020 1:19 pm Thanks, MarkNYC. It seems there are a lot of reports here (and elsewhere such as the Intuit/TT forum) of people just submitting their corrected 8606s. I haven't seen any anecdotal reports of people just correcting it with their next return, but I will admit that was my first thought of corrective action when I discovered the problem (and before researching it).

Wouldn't people who submitted standalone 8606 forms have received some sort of rejection notice if the IRS wasn't willing to process them without 1040X?
Ideally yes, but some IRS procedures are not ideal.

Let's think it through. If you now filed a 2009 amended return for the purpose of correcting an amount on your originally filed 8606 and included a corrected 8606 with the 2009 amended return to reflect the change, do you think the IRS will process your 2009 amended return filed in 2020? I don't think so, due to the 3 year statute. So is it logical to think a taxpayer can cleverly get around the 3 year limitation and get the original 2009 amount changed by just filing a corrected 8606 without the amended return?

I also doubt the IRS has the computer program ability to currently change an amount reported on your 2009 tax return, even if it was willing to do so. And it's my belief that with its limited resources, the IRS has very little interest in trying verify the accuracy of a taxpayer's IRA basis, since it would require too much time for the potential return. IRS priorities lie elsewhere.
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Harry Livermore
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Harry Livermore »

Sorry, you got me curious so I had to look. I went to my emails to the accountant in the spring of 2011. I noted my failure to file 8606 in my earliest years, but apparently was correctly doing it by the time I got married, so my wife's basis was correct.
He simply put the accurate basis on line 17 of Part II, Conversions From Traditional...
No corrected returns were filed. I'm unable to locate the belated 8606 form(s) so perhaps they did not go in after all...
I do have the certified receipt from mailing it in, though it may be the return ;)
Cheers
Last edited by Harry Livermore on Wed Dec 23, 2020 2:43 pm, edited 1 time in total.
Nowizard
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Nowizard »

Would it not be possible to simply leave the funds where they are in a Traditional-IRA as non-deductible contributions and claim that when taking distributions from the Traditional-IRA? We have non-deductible amounts in a Traditional-IRA that pre-date existence of the ROTH-IRA in 1997.

Tim
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TravelGeek
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by TravelGeek »

MarkNYC wrote: Wed Dec 23, 2020 2:09 pm Let's think it through. If you now filed a 2009 amended return for the purpose of correcting an amount on your originally filed 8606 and included a corrected 8606 with the 2009 amended return to reflect the change, do you think the IRS will process your 2009 amended return filed in 2020? I don't think so, due to the 3 year statute. So is it logical to think a taxpayer can cleverly get around the 3 year limitation and get the original 2009 amount changed by just filing a corrected 8606 without the amended return?
Perhaps what they will do when they get my stack of 2009-2018 8086s is they update my 2018 return (2019 didn’t have an 8086 since I didn’t have any contribution) and just consider the other 8086s as “evidence” that the correction requested is valid? I have not seen any reports that the IRS required a 1040X with a corrected 8086 that just fixed the basis, so I will probably skip it.

In any case, I just went through with my Roth conversion. The entire account will be converted in one fell swoop. Before I submitted it, I printed the transaction confirmations for every single non-deductible contribution from the Vanguard website into pdf files, so I have a way to later back up my basis calculation.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by niagara_guy »

I made after tax contributions for several years in the 1990s and did not file a form 8606. I realized the mistake several years ago, wrote a letter to the IRS explaining the situation and included form 8606s for each year. Never got reply from IRS, I am now converting money to Roth and filing 8606 for each tax year.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Alan S. »

As Mark indicated, the IRS probably lacks the system capabilities to track IRA basis and they have little interest in spending agent time delving into related taxpayer issues.

In the way of anecdotal observations, I have been deeply involved with addressing forum posts in various forums for over 20 years. Many of these posts relate to Form 8606, and in particular the filing of such forms many years in arrears. Not once has anyone commented that the IRS questioned anything about these forms. IRS inquiries are limited to the reporting of conversions without an 8606 attached to the current tax return. Again, the particular basis amount used to report distributions is never questioned. This begs the question, "what does the IRS do with these forms"?

Many of these retroactive 8606 forms are filed about the time a taxpayer is about to convert or take a distribution from their TIRA and somehow determines that the 8606 was not originally filed. They then send in several old 8606 forms, take the last line 14 basis and apply it to their current conversion. Again, not once has anyone reported that the IRS has questioned the amount of basis reported on the conversion 8606, despite that basis being documented by all the retroactive 8606 forms recently sent in by the taxpayer.

Now knowing that even bogleheads mess up their 8606 forms routinely, can you imagine the situation with the general public?

I suppose if the IRS does a full audit on a taxpayer for other reasons and find a bunch of conversions with low taxable ratios, they might delve into that individual situation. Again, triggered by other issues that may have made the taxpayer subject to a thorough audit. Perhaps an entirely new processing platform will enable the IRS to get control of IRA basis at some point, but right now the IRS may well be in the worst shape it has ever been. Congress passing massive tax bills late in the year does not help the situation.
freight_train
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by freight_train »

TravelGeek wrote: Wed Dec 23, 2020 2:45 pm
Perhaps what they will do when they get my stack of 2009-2018 8086s is they update my 2018 return (2019 didn’t have an 8086 since I didn’t have any contribution) and just consider the other 8086s as “evidence” that the correction requested is valid? I have not seen any reports that the IRS required a 1040X with a corrected 8086 that just fixed the basis, so I will probably skip it.
I thought I'd post my experience. I sent an updated 8606 to add $100 in basis which I had forgotten about, but had reported correctly in 2005. I simply forgot about it on the 2012 8606 and going through the backdoor Roth process I wanted to add it back in to have my basis right going forward. I sent the form and an explanation letter in February, and got several "we can't get to it yet" letters, and finally this week I got one asking me to file a 1040X. So I will be filing a 1040X with no changes but with a new 8606 and an explanation letter. Or maybe I won't... at this point I wish I had just not bothered and paid the extra tax on the whopping $100! I still could... now that I've "outed" the error do you think I have to see it through?
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Alan S. »

freight_train wrote: Fri Oct 15, 2021 8:54 am
TravelGeek wrote: Wed Dec 23, 2020 2:45 pm
Perhaps what they will do when they get my stack of 2009-2018 8086s is they update my 2018 return (2019 didn’t have an 8086 since I didn’t have any contribution) and just consider the other 8086s as “evidence” that the correction requested is valid? I have not seen any reports that the IRS required a 1040X with a corrected 8086 that just fixed the basis, so I will probably skip it.
I thought I'd post my experience. I sent an updated 8606 to add $100 in basis which I had forgotten about, but had reported correctly in 2005. I simply forgot about it on the 2012 8606 and going through the backdoor Roth process I wanted to add it back in to have my basis right going forward. I sent the form and an explanation letter in February, and got several "we can't get to it yet" letters, and finally this week I got one asking me to file a 1040X. So I will be filing a 1040X with no changes but with a new 8606 and an explanation letter. Or maybe I won't... at this point I wish I had just not bothered and paid the extra tax on the whopping $100! I still could... now that I've "outed" the error do you think I have to see it through?
How many years of returns since 2005 contained an 8606 with incorrect basis? For every year with a non deductible contribution or distribution since 2005 your 8606 must show your total prior basis on line 2. If the IRS wants a 1040X, they would need one for every year after 2005 showing an incorrect figure on line 2.

The IRS seemingly has no controls regarding this form, they do not check the accuracy of basis figures on the form and no one has reported being asked to document their basis. You might have used your correct basis for this backdoor Roth, retaining as many old 8606 forms as you filed in the highly unlikely case where the IRS questions your most recent 8606. Or as you said, just forfeited the $100 of basis.

Did you file a 2019 or 2020 return with an 8606, using the updated basis figure?
freight_train
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by freight_train »

I've checked them all. Nice trip down Memory Lane!

The $100 nondeductible contribution was made in 2005 when I mistakenly contributed to the traditional IRA when I meant to put it in the Roth. It was reported correctly on the 2005 8606 form with a basis in nondeductible IRAs of $100.

2007, 2009, and 2010 forms 8606 were filed due to early distributions from a Roth. All do show the $100 in total basis in traditional IRAs and therefore are correct.

Other years besides 2012, all the way through current, had no activity needing an 8606 so none were filed. However, 2021 will have an 8606 and I won't be forgetting this.

The only 8606 form filed with an incorrect basis was 2012. That contribution was a nondeductible contribution to traditional IRA of $5,000 and the 8606 for that does not have the extra $100 in basis from 2005. The "total basis" line on the 2012 8606 is 0 when it should have been $100.
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retiredjg
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by retiredjg »

If I understand your post, only the 2012 form is incorrect and there have not been any 8606 forms filed or needed since the incorrect one.

It is too late to file a 1040x for 2012 - the year the form is incorrect. And a 1040x is not even needed if the only change is on the 8606 (and there is no change in tax).

I'm wondering...when you sent in the recent one, did you download and use the 2012 form or did you send in a more recent form? It should have been the 2012 form.

The reason I'm asking is that the IRS generally does not send any acknowledgement (much less "we are getting to you" notices after receiving an old 8606...so something seems a little off.
jatwell
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by jatwell »

If you had $100 basis in the account since 2012, wouldn't you need a 8606 every year since? You have to file 8606 to track basis even if nothing else happens each year.
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retiredjg
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by retiredjg »

I don't think there is any requirement to file a new form each year if there are no changes. The last form is adequate.

Some people like to do it though.
Soon2BXProgrammer
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Soon2BXProgrammer »

jatwell wrote: Sun Oct 17, 2021 5:53 am If you had $100 basis in the account since 2012, wouldn't you need a 8606 every year since? You have to file 8606 to track basis even if nothing else happens each year.
the instructions for 8606 say to look up the value from the previous filed.
Line 2 says to use the total basis chart: https://www.irs.gov/instructions/i8606# ... 1961013056
Total basis chart: https://www.irs.gov/instructions/i8606# ... 1960991760
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by freight_train »

retiredjg wrote: Sat Oct 16, 2021 2:51 pm If I understand your post, only the 2012 form is incorrect and there have not been any 8606 forms filed or needed since the incorrect one.

It is too late to file a 1040x for 2012 - the year the form is incorrect. And a 1040x is not even needed if the only change is on the 8606 (and there is no change in tax).

I'm wondering...when you sent in the recent one, did you download and use the 2012 form or did you send in a more recent form? It should have been the 2012 form.

The reason I'm asking is that the IRS generally does not send any acknowledgement (much less "we are getting to you" notices after receiving an old 8606...so something seems a little off.
You understand my post correctly. I sent the 2012 version of the form, with "CORRECTED" in big letters across the top. I bet I just got the "new" agent. I got no less than three "we are getting to you" notices and then the letter asking for a 1040X, even including a blank one in the envelope.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by retiredjg »

I think you probably stumbled onto a new person as well. I have no idea what you should do. I am 99% sure a 1040x is not needed, but if they now have a file open on the subject, it might be best to answer. Maybe Alan has a suggestion.

Just out of curiosity...what year was the 1040x for?
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Nowizard »

In the past, we failed to file form 8606 for non-deductible contributions for both of us over two years. When I realized it, I filed and included a $200 check for the $50 failure to file for each error. Several months later, correspondence was received from IRS with return of the $200, plus interest, and the statement they were not assessing a penalty.

Tim
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by freight_train »

retiredjg wrote: Sun Oct 17, 2021 10:23 am I think you probably stumbled onto a new person as well. I have no idea what you should do. I am 99% sure a 1040x is not needed, but if they now have a file open on the subject, it might be best to answer. Maybe Alan has a suggestion.

Just out of curiosity...what year was the 1040x for?
The form is revision January 2019 and has checkboxes for years 2015 through 2018, or I can write in a year.

I'll probably go ahead and submit it just so I can tell you all what happens. I'm over the cliff now! I'll include a copy of their letter saying I should, in case another even newer agent is as puzzled as we all are.
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retiredjg
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by retiredjg »

Well, I'm bewildered. I thought an amended return can only go back 3 years.

Let us know what you find out. A shame the IRS is wasting time on this (they are so far behind) but new people have to learn and get up to speed just like everybody else did.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by MarkNYC »

freight_train wrote: Sun Oct 17, 2021 11:47 am
retiredjg wrote: Sun Oct 17, 2021 10:23 am I think you probably stumbled onto a new person as well. I have no idea what you should do. I am 99% sure a 1040x is not needed, but if they now have a file open on the subject, it might be best to answer. Maybe Alan has a suggestion.

Just out of curiosity...what year was the 1040x for?
The form is revision January 2019 and has checkboxes for years 2015 through 2018, or I can write in a year.

I'll probably go ahead and submit it just so I can tell you all what happens. I'm over the cliff now! I'll include a copy of their letter saying I should, in case another even newer agent is as puzzled as we all are.
I don't think @retiredjg or others should be so confident that an amended return is not needed. I'm not aware of anything in the code, regulations, or IRS instructions (in this case to Form 8606) that indicates that after an original Form 1040 is filed, a change can be made to the individual's tax account for that year without filing a Form 1040-X. Some, after filing the 1040, have told of later filing either stand-alone delinquent original Form(s) 8606 or stand-alone corrected Form(s) 8606, and having heard nothing from the IRS assume the IRS changed their account records accordingly. I think that's a big assumption.

In your situation, the IRS letter indicates a 1040-X is required, but the IRS may have returned your improperly filed stand-alone corrected form 8606 without focusing on the year involved. It's possible that when the IRS receives your 2012 amended return, they will return it to you stating that it is too late to amend your 2012 return.

There is nothing in the Code regarding amended returns. The 3-year statute of limitations refers to the time limit for submitting a claim for refund of prior-year return taxes paid, or for the IRS to assess additional taxes for a certain year. The IRS has ruled that a change can be made to a return older than 3 years for the sole purpose of producing a correct carryover to the current year, but has been silent as to the correct procedure for doing so. Perhaps an amended return is the method they want, but I have some doubts - see my prior related post above.
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TravelGeek
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by TravelGeek »

TravelGeek wrote: Tue Dec 22, 2020 8:22 pm
Some questions:

- does anyone know how long it would likely take the IRS to process the corrected Forms 8606, and will I receive a notification when it's done?
I submitted my corrected forms with explanation in May of 2021. Yesterday I received an IRS letter (*) in the mail:
Dear Taxpayer:

Thank you for your correspondence which we received on May XX, 2021. We reviewed the information you provided and determined no action is necessary on your account.

If you have questions, you can call 800-829-0922.



Keep a copy of this letter for your records.

Thank you for your cooperation.
(*) I really hate seeing IRS letters in my Informed Delivery email and then having to wait for the mail person to actually deliver it…
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by retire2022 »

Alan/retiredjg

Does rolling over pretax IRA into a retirement work plan ie 401k, 403b or 457b eliminates the prorata rule and the need for figuring out basis or submitting 8606 form?

I never done but I thought I read somewhere that it does.
Katietsu
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Katietsu »

retire2022 wrote: Sat Feb 19, 2022 7:38 pm Alan/retiredjg

Does rolling over pretax IRA into a retirement work plan ie 401k, 403b or 457b eliminates the prorata rule and the need for figuring out basis or submitting 8606 form?

I never done but I thought I read somewhere that it does.
The reason to roll over pretax IRA into a workplace account is to leave nothing (or near nothing) but already taxed dollars in the IRA. You can then convert to a Roth leaving nothing in the traditional IRA. The amount converted should be approximately equal to the basis. I would describe this as eliminating tax that otherwise would result from the pro rata rule. I would not describe it as eliminating the need to figure out basis or submit an 8606.
Just to be clear, basis only happens in a traditional IRA as a result of a non deductible contribution. If you have only pretax dollars in there, you have no basis. Additionally, those non deductible contributions that led to a basis can not be ruled into a workplace 401k, etc.
retire2022
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by retire2022 »

Katietsu wrote: Sat Feb 19, 2022 8:00 pm
The reason to roll over pretax IRA into a workplace account is to leave nothing (or near nothing) but already taxed dollars in the IRA. You can then convert to a Roth leaving nothing in the traditional IRA. The amount converted should be approximately equal to the basis. I would describe this as eliminating tax that otherwise would result from the pro rata rule. I would not describe it as eliminating the need to figure out basis or submit an 8606.
Just to be clear, basis only happens in a traditional IRA as a result of a non deductible contribution. If you have only pretax dollars in there, you have no basis. Additionally, those non deductible contributions that led to a basis can not be ruled into a workplace 401k, etc.
Katietsu

thanks for responding to my question, somewhere in my Traditional IRA, just to clarify has $800 of non deductible contribution which was done in 2001, that amount has morphed and grown kept as a segregated account Traditional IRA account now worth 7k.

If I rollover this to a workplace plan from what you describe will not eliminate the pro-rata rule, and will still require a 8606?
see highlighted sentence.
NMBob
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by NMBob »

retiredjg wrote: Sun Oct 17, 2021 7:40 am I don't think there is any requirement to file a new form each year if there are no changes. The last form is adequate.

Some people like to do it though.
i have been carrying the same total for years and the tax programs like hr block do not print it with my return. In fact the form shows the box empty this year until i hit the print the form for myself box on the 8606 and then the carrying number appeared in the form.
Katietsu
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Katietsu »

retire2022 wrote: Sat Feb 19, 2022 8:09 pm Katietsu

thanks for responding to my question, somewhere in my Traditional IRA, just to clarify has $800 of non deductible contribution which was done in 2001, that amount has morphed and grown kept as a segregated account Traditional IRA account now worth 7k.

If I rollover this to a workplace plan from what you describe will not eliminate the pro-rata rule, and will still require a 8606?
see highlighted sentence.


The way to eliminate the $800 basis going forward would
be…

Roll over all your traditional IRA funds to your workplace retirement account EXCEPT for $800. The $800 is ineligible to be moved to a workplace 401k, 403b. Put everything into cash first. Personally, I would leave $850 in the IRA just for a little cushion.

After this roll over has been successfully completed, you convert the remaining $800 or so to a Roth IRA. You make sure that the traditional IRA has nothing in it on December 31. This means ALL traditional IRAs not just an IRA that the $800 was put into. The IRS views all your IRAs as one big account for purposes of things like pro rata and RMD.

You fill out a Form 8606 for 2022. But you will not be subjected to pro rata rules in the future unless you make another non deductible contribution. You have eliminated the basis. And you could potentially eliminate the Form8606 in the future years after 2022.

You could actually roll the money back out of the workplace plan into a traditional IRA in 2023 if you wanted. At that point, there would be no basis and no Form 8606 unless you opted for a Roth conversion. The Roth conversion would just be fully taxable, no pro rata.

Sometimes people with just $800 of basis in a large IRA, choose to just ignore it. They do not feel that the pennies saved on their taxes is worth the effort to bother with a Form 8606. I can see a CPA charging more for the extra form preparation than is saved in taxes. So any of the three approaches to handling the small basis would be reasonable.
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retiredjg
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by retiredjg »

TravelGeek wrote: Sat Feb 19, 2022 7:15 pm I submitted my corrected forms with explanation in May of 2021. Yesterday I received an IRS letter (*) in the mail:
This is good news. Thanks for the update.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Navillus1968 »

TravelGeek wrote: Sat Feb 19, 2022 7:15 pm
TravelGeek wrote: Tue Dec 22, 2020 8:22 pm
Some questions:

- does anyone know how long it would likely take the IRS to process the corrected Forms 8606, and will I receive a notification when it's done?
I submitted my corrected forms with explanation in May of 2021. Yesterday I received an IRS letter (*) in the mail:
Dear Taxpayer:

Thank you for your correspondence which we received on May XX, 2021. We reviewed the information you provided and determined no action is necessary on your account.

If you have questions, you can call 800-829-0922.


Keep a copy of this letter for your records.

Thank you for your cooperation.
(*) I really hate seeing IRS letters in my Informed Delivery email and then having to wait for the mail person to actually deliver it…
Sounds like a win. Actually kind of surprised they deigned to respond at all!

Here's Ed Slott's opinion on whether filing amended F8606s requires also filing Form 1040X for each year amended, as was discussed at length upthread-

"If taxpayer did not take a distribution from 2017-2019 they can file an amended 8606 for each year without a 1040X, but would need a 1040X if there was a distribution taken that reported the wrong basis. No need to wait to file 2020 unless there was a 2020 distribution. There is plenty of evidence that the IRS does not keep tabs on Form 8606 accuracy, so would not wait more than 4 weeks to file after the amended 8606 forms are sent in." [emphasis added]

https://www.irahelp.com/forum-post/6283 ... cted-8606s

This makes sense to me- in my experience with Turbotax, the software will generate a F8606 with correct Line 1 "nondeductible contributions to traditional IRAs," but it relies on the taxpayer to enter Line 2 "total basis in traditional IRAs."

The end result can be that Form 8606 is filed for the year with correct current year contributions, but with incorrect/incomplete basis information carried forward from prior years.
Amending a F8606 to correct Line 2 (and Lines 3 & 14, once Lines 1 & 2 are added up) doesn't affect taxes owed since the original deduction was not deductible and, if no Roth conversions occurred in the tax year, no taxable event flows from Part II, since it's blank in a year where the F8606 is filed simply to track basis.
I'm no tax expert, but I fail to see why a Form 1040X would be required if the taxpayer is filing amended F8606 to correct basis, in the absence of Roth conversions &/or TIRA/Roth distributions.

Informative Michael Kitces blog post about recovering lost basis in TIRAs after failing to file F8606- https://www.kitces.com/blog/traditional ... form-8606/

No mention of penalties for filing incorrect F8606 nor any mention of filing F1040X.
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TravelGeek
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by TravelGeek »

In our case, I submitted the corrected 8606s in May of 2021 and then filed the 2020 taxes (using the corrected basis for Roth conversions) in September. The return so far didn’t trigger any complaints and we received the refund we expected.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by MarkNYC »

TravelGeek wrote: Sat Feb 19, 2022 7:15 pm I submitted my corrected forms with explanation in May of 2021. Yesterday I received an IRS letter (*) in the mail:
Dear Taxpayer:

Thank you for your correspondence which we received on May XX, 2021. We reviewed the information you provided and determined no action is necessary on your account.

If you have questions, you can call 800-829-0922.

Keep a copy of this letter for your records.

Thank you for your cooperation.
(*) I really hate seeing IRS letters in my Informed Delivery email and then having to wait for the mail person to actually deliver it…
So, the IRS did not say they processed the stand-alone corrected Forms 8606 that they received, and the sentence I bolded above is interesting. Having received stand-alone "amended Form 8606" for numerous old years, the IRS seems to be saying there is no need for them to change anything on the taxpayer's account. What I infer from that, and what years of taxpayer experiences seem to suggest, is that the IRS does not keep track of a taxpayer's accumulating IRA basis from nondeductible contributions. The IRS leaves that recordkeeping to the taxpayer. So when the IRS receives a stand-alone Form 8606, whether a delinquent original form or a "corrected" form that shows nothing except additional or revised basis, the IRS essentially does nothing with that form. In the above example, they characterize the corrected forms as part of taxpayer "correspondence" and "information" that requires no change (action) on the taxpayer's account.

In years where IRA distributions are made, if IRA basis reduces the taxable amount of the distribution, the IRS will just accept the taxpayer's basis amount on Form 8606 unless the circumstances are unusual. Even in the rare event of an audit of the return, I doubt if anything would be checked other than perhaps the basis showing on the Form 8606 for the prior year or two.

What this means is that it's a waste of time filing an original 8606 or "amended 8606" which is more than 3 years old and submitted to the IRS for the sole purpose of producing corrected basis coming into the current year. Instead, file the current year Form 8606 along with the 1040 showing the correct basis and attach an explanatory statement of any change. Just my opinion, but I'm becoming more convinced of it as time goes by.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Alan S. »

I agree with Mark.
Further, there is plenty of anecdotal indications from various forums that the IRS never questions the basis you show on line 2 of your 8606. Evidently, they ignore the 8606 for both contributions and distributions. We spend far more time here on this form than the IRS does.

Do they do any better on Roth IRA basis? Probably not.
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Re: 8606 Corrections (multiple years) - recent experiences?

Post by Oenophileangler »

TravelGeek wrote: Sat Feb 19, 2022 7:15 pm
TravelGeek wrote: Tue Dec 22, 2020 8:22 pm
Some questions:

- does anyone know how long it would likely take the IRS to process the corrected Forms 8606, and will I receive a notification when it's done?
I submitted my corrected forms with explanation in May of 2021. Yesterday I received an IRS letter (*) in the mail:
Dear Taxpayer:

Thank you for your correspondence which we received on May XX, 2021. We reviewed the information you provided and determined no action is necessary on your account.

If you have questions, you can call 800-829-0922.



Keep a copy of this letter for your records.

Thank you for your cooperation.
(*) I really hate seeing IRS letters in my Informed Delivery email and then having to wait for the mail person to actually deliver it…
I had a similar issue with erroneous past 8606's which I asked about last year. I mailed, certified with return receipt, a stack of 8606's on April 26, 2021 to our IRS mailing address. Because I haven't yet been cured of my OCD, I also sent copies to my state (CA) tax board. I have proof of receipt. I have yet to hear from the IRS. Maybe my state's office is more challenged than TravelGeek's state. I'm not going to worry if I never hear from them.

I find Alan S's post on Dec 24 to be most comforting, plus I know that, in the end, I'm not trying to defraud anyone. I feel that I could defend myself in court, should that ever be necessary! I know there's some Boglehead out there who'll post something now that will throw a wrench into my last statement...

As an aside, my fee only financial planner (he's a CPA as well as a CFP) suggested that I file another 8606 with my 2021 1040, again with correct numbers just to make sure the IRS has it. As noted in the OP, TurboTax is not the greatest at 8606 handling. I have not been able to find a way for TurboTax to e-file an 8606 when it is not necessary. I think that I will "force" TurboTax to file an 8606 by contributing $50 (non deductible) to my wife's IRA for 2021.

I plan to bite the bullet and do a series of Roth Conversions in the future so we can get this cost basis issue behind us.
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