Got IRS notice cp2000 for year 2017. 1099-R form related

[coolbret]

Got IRS notice cp2000 for year 2017.

I contributed 2 times in IRA and then converted to ROTH in 2017 ( for backdoor roth).  One in April 2017 for year 2016. Other is July 2017 for year 2017.

Problem is Merrill sent two contributions of $5500  for year 2017 to IRS . There are two 1099-R forms. 1099-R of year 2017  BOX 7 says 2 in both forms

Now IRS says one $5500 is taxable retirement income and applying tax on this amount.  What can be done in this case ?

[macuser_22]

1) Were these non-deductible Traditional IRA contributions entered as IRA contributions and reported on a 2016 8606 form for the 2016 contribution and on a 2017 8606 form for the 2017 contribution so the total nondeductible basis of both would be on line 14 of the 2017 8606 form?

2) When you reported the 2017 1099-R forms did you answer the 1099-R follow-up questions that the distribution was converted to a Roth IRA and there was non-deductible basis where you entered the last (2017) 8606 form line 14 value so that it could offset some, or all, of the tax?    And then enter the total  2017 year end value of all existing Traditional IRA accounts?

3) Did any other Traditional, SEP or SIMPLE IRA account exist art the end of 2017?    A "Backdoor Roth" will not work if the basis (from question 1) must be prorated over any other existing IRA (questions 2).

Method of entering Backdoor Roth (for 2018 adjust dates of other tax years)

This so-called “back-door Roth” method ONLY works if you have NO OTHER Traditional IRA accounts.  If you do, then the non-deductible part must be spread over ALL accounts and cannot be withdrawn by itself.  Only if you started with NO Traditional, SEP & SIMPLE IRA and ended up with a zero amount in ALL Traditional, SEP & SIMPLE IRA accounts will this Roth conversion not be taxable.

First you must enter your Traditional IRA contributions (if there were 2018 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that the are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2018.     (Usually zero unless you also made a 2017 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2018 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2018, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion

[macuser_22]

Also assuming that the 1099-R's had the IRA/SEP/SIMPLE box checked.

If entered properly in the 2017 tax return and there were no other Traditional IRA accounts at the end of 2017 then the 2017 tax return should have had the total 1099.R box 1 amounts on the 2017 1040 form line 15a and zero on line 15b with the word "ROLLOVER" next to it (if only partly non-taxable then  the taxable amount would be on line 15b.)

[coolbret]

YEAR 2017 - 1040  had line 15a  equal to 11000 (5500 for 2016 and 5500 for 2017).

 line 15b is zero but there is no "ROLLOVER" word next to it.

[coolbret]

1. yes, its non-deductible.

2. i believe i entered properly thats why form 8086 looks correct. ? isn't it? how else can i check for year 2017?

3. Traditional, SEP or SIMPLE IRA account  didn't exist at the end of 2017.

How can i see what i entered in 1099-R for year 2017 ?

[macuser_22]

Does the 2017 8606 form show the 2017 Roth conversion information in part II lines 16-18?   If not then you might not have indicated to TurboTax that it was a Roth conversion.

If the 8606 forms seem correct and you did not have any other 2017 year end IRA then I suggest that you call the IRS on the number that should be in the CP2000 notice and explain to them that this should be a tax free Roth conversion.     If they want any follow-up documentation, they should tell you what to send them to prove it. 

Even if you failed to properly enter the conversion, they might be able to fix it over the phone (or ask you for an amended return to be sent to the address on the CP2000 notice) - ask the IRS first.

[coolbret]

Checked year 2017 8606 forms . lines 16-18 are empty. Looks like i missed it that it was roth conversion.

Now do i have to amend entire return? How can i do in turbotax?  any pointers?

[macuser_22]

Like I said above - call the IRS on the number that should be on the CP2000 notice.   Do not amend unless the IRS says to - it might not be necessary - and if they do want you to amend then they will tell you where to mail it to.

(Just amending takes 4 months to process and will not satisfy the CP2000 letter time limits.)