The Taxable IRA Distribution Worksheet (WS) doesn't calculate the correct non-taxable and taxable amounts of just a distribution, just a conversion, and a distribution/conversion combination with a dirty IRA. A dirty IRA is a shorthand term that is sometimes used to refer to a contribution that is made between January and April of the next year but reported in the current year. The WS uses line 3 of the 8606, instead of line 5 of the 8606 as the numerator for the non-taxable fraction. Line 5 has the subtraction for a dirty IRA that is part of basis in a following year (line14), but is not part of basis in the current year for calculating lines 5 - 13 of the 8606.
An example: Non-deductible dirty IRA: 5K, basis from earlier years: 10K, distribution & conversion: 4K, ending balance: 96K. The non-taxable fraction should be .10 (10K/100K) (excludes the dirty IRA), but is .15 (15K/100K) (includes the dirty IRA) in the WS post-tax numerator. The corresponding correct amounts are 3,600 and 400, but the WS calculates them as 3,400 and 600. The workaround is to override line 3 of the WS and change 15K to 10K. The WS is wrong, but the 8606 has the correct non-taxable and taxable amounts, which prevents the need for an amended return.
On April 7, 2023, I spent about three hours talking to customer service, including a supervisor who wasn’t aware of any related WS issue, but forwarded it to their investigative team. I also do taxes for seniors. We use TaxSlayer, which calculates this example correctly.
