Background:
Step #1 - While filing my 2022 federal tax return, I realized that Line 2 of my already filed 2021 Form 8606 had the wrong “historical non-deductible Traditional IRA contributions” (i.e., $0 instead of $6,000). This error did not impact my 2021 tax return because Line 2 serves to only keep track of the “non-deductible IRA basis”, but it did set the wrong “non-deductible IRA basis” for my the 2022 tax return I was about to file.
Step #2 - I did e-file my 2022 federal tax return using the correct “non-deductible IRA basis” (i.e., as if my 2021 Form 8606 had been originally filed correctly), and at the same time amended my 2021 Form 8606 (via mail) to show the correct “non-deductible IRA basis” on Line 2, which post-amendment aligned with the filed 2022 federal tax return. In filing the 2022 federal tax return, I added a statement at the end explaining that my 2021 return missed $6,000 of “non-deductible IRA basis” in Form 8606 and that I was going to amend it, but I was not able to actually attach the amended 2021 Form 8606 with my 2022 tax return because I e-filed my 2022 return.
Step #3 - In November 2023, I received Notice CP22A from the IRS stating that I had a balance due arising from the 2021 amendment I described on point #1 above. Considering that I am 100% sure the amendment should not trigger any additional tax liability in my 2021 tax return, I called the IRS and spoke to an agent that confirmed there was a mistake on the IRS’ end and that a $0 balance should be showing under my account. The agent told me they passed along a notice to the “Admitted Returns Department” via Form 4442 and that a decision would be made within 30 days.
Step #4 - In December 2023, I received an IRS Letter thanking me for my December call and explaining that the new balance due was from the amended 2021 tax return (which I already knew) – this letter did not provide any additional details. As such, I once again called the IRS and this time an Agent that seemed quite lost / unexperienced confirmed that my claim was still being looked at – They also told me that the IRS Letter I had just received did not show-up on their system and suggested to give more time to the process.
Step #5 – Last week (late February 2024) I received Notice CP501 (i.e., different from the original Notice CP22A) with the same balance outstanding plus some additional interest and late-fee penalties. This letter did not provide any details behind the balance due or regarding my inquiries or calls.
Questions:
- Question #1 - The IRS calls / agents seem to not be very helpful to resolve this issue. What process would you recommend I follow to clear this up?
- Question #2 - Is it better to pay my balance due and then figure out how to get a refund back?
- Question #3 - Is there anything else I am missing in this overall process that I should be considering in terms of the amendment?
Thank you very much in advance!
