I need to amend several years' worth of Forms 8606, Nondeductible IRAs, to correct the Line 2 basis which wasn't being carried forward from previous years. No distributions have ever been taken, so they report only the nondeductible contributions for that year. Up through 2018, the Form 8606 had a checkbox in the header to indicate that it's an amended return. Every year since (2019-2022) does not have this checkbox.
1) What is the proper way to indicate these are amended Forms 8606--should I just write "AMENDED" in the top margin?
2) And should it be accompanied by a cover letter to the IRS with a detailed explanation as to what is being amended, along with documentation?
3) And finally, what would the IRS want to see in terms of documentation? The brokerage's Form 5498 shows the IRA contributions, but how do you prove there were no distributions taken that year? Thanks!
Will the IRS detect your change to your basis on line 2 of your 2022 Form 8606 from what was on line 14 of the previous Form 8606 that you filed without an audit? Maybe not. However, the tax code requires nondeductible contributions to be reported on the tax return (Form 8606) for the year for which the contribution was made and the IRS states in IRS Pub 590-A that they will treat as pre-tax money in the IRA any amount of nondeductible traditional IRA contributions not properly reported. In other words, you are rolling the dice if you do not correct each year's incorrect or missing Form 8606.
For any year that you do not have the necessary tax software to prepare the Form 1040-X, it would be more work to use tax software than to just prepare the form manually. Preparing Form 1040-X manually when there are no changes to income, deductions or tax liability is a pretty trivial process, mainly just copying numbers directly from your originally filed tax return onto the fillable Form 1040-X that you can download from the IRS.
The proper way to file Form 8606 is attached to Form 1040-X.
Form 8606 can be mailed by itself only when you are otherwise not required to file a tax return. See Instructions for Form 8606 which state exactly that.
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Do you have the correct taxable amount on Line 4b, and did not take a deduction?
After you e-File (you already filed)
get 2021 Form 1040-X from IRS website and mail it in with your 2021 Form 8606, which you can also get in fillable PDF.
Note: since you are not changing any dollar amounts on your amended tax return, you can leave all the lines 1-23 EMPTY.
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Part III explanation: "didn't include Form 8606 with filed return".
Repeat for other years.
Done this way, you sign 1040-X, not 8606
I have to amend the 8606's back to 2016...you're saying I can file 1040-X w/8606 even beyond the time a return may be amended? No changes are required on any of the 1040's themselves--only Form 8606 lines 1, 2 and 3 need to be amended to correct the basis amounts carried forward.
https://www.irs.gov/pub/irs-prior/f1040x--2020.pdf
has most of the years you are interested in. And, an "Other Year" spot.
@Tremaine2 wrote:
I have to amend the 8606's back to 2016...you're saying I can file 1040-X w/8606 even beyond the time a return may be amended? No changes are required on any of the 1040's themselves--only Form 8606 lines 1, 2 and 3 need to be amended to correct the basis amounts carried forward.
Let me poll @dmertz here, who is the best expert on this topic.
You can file form 8606 alone if you are changing your basis or reporting non-deductible contributions as long as it does not change your overall tax owed or refund due. There would be no reason to file a 1040-X.
(To clarify one point: you can file an amended tax return for any year you need to correct, no matter how old. If you are due a refund, it won't be paid if the amended return is more than 3 years old, but you can still file to make needed corrections.)
It sounds like you are only updating the non-deductible basis, so I don't think you need to include a full 1040-X. I do think you would write "Amended" across the top. Send the forms in separate envelopes, and use a mailing service with proof of delivery. I don't have a strong opinion on attaching an explanation, but i think it's probably unnecessary because the IRS will be able to see that the carryovers are tracking.
Form 8606 can be mailed by itself only when you are otherwise not required to file a tax return.
I generally advocate for including Form 1040-X to show that there is no other change to the tax return that results from the change to Form 8606.
Thanks all for your responses! I understand why filing a 1040X is recommended. Creating the amended returns (1040X) for all these years is proving difficult, however. I am missing my copy of 2017 Premier and can't find it readily available! I had a couple more complex tax years during which I used a CPA rather than TT; if I wished to amend those years and generate a 1040X, do I generally need to enter all the data from the return into TT for that year, or is it possible just to generate the 1040X and the 8606 without recreating the entire return? Sorry--I've never done an amended return before!
I just thought of a nuance that may obviate the need to amend the erroneous or missing Forms 8606 from past years. When I filed 2022, I brought the basis up-to-date on the 2022 Form 8606. In other words, I went back to the first year of non-deductible contributions, pulled copies of every Form 5498, and calculated the correct basis that should have been entered each year, such that when I arrived at 2022, the basis is now correct. Now that the basis is correct (and should be for every year going forward), would I still need to amend all the prior years 8606s, or is the correct basis on 2022 sufficient? Or does this likely trigger some kind of letter from IRS to explain how I got here? Thanks!
Will the IRS detect your change to your basis on line 2 of your 2022 Form 8606 from what was on line 14 of the previous Form 8606 that you filed without an audit? Maybe not. However, the tax code requires nondeductible contributions to be reported on the tax return (Form 8606) for the year for which the contribution was made and the IRS states in IRS Pub 590-A that they will treat as pre-tax money in the IRA any amount of nondeductible traditional IRA contributions not properly reported. In other words, you are rolling the dice if you do not correct each year's incorrect or missing Form 8606.
For any year that you do not have the necessary tax software to prepare the Form 1040-X, it would be more work to use tax software than to just prepare the form manually. Preparing Form 1040-X manually when there are no changes to income, deductions or tax liability is a pretty trivial process, mainly just copying numbers directly from your originally filed tax return onto the fillable Form 1040-X that you can download from the IRS.
Ah-thank you, very helpful! I was overthinking this for sure. Most appreciated, you and the community!
"Only when you are not required to file a tax return" is ambiguous and not inherently obvious. Am I not required to file a tax return because it's October and I already filed my 2022 return? Am I required to file a return because my income level is above the threshold? Regarding filing a 1040X, the IRS only says: "You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly."
As far as I know/understand, adjusting the non-deductible IRA basis does not adjust or correct your filing status, dependents, total income (due to no distributions/conversions), deductions, or credits. Do I really need a 1040X with nothing updated just to include the explanation with the forms? Or, can I send each copy of Form 8606 that needs correction separately without the 1040X because it changes nothing but the IRA basis data?
If you are not sure whether you are required to file a tax return or not,
see IRS Pub 17 for who must file.
BUT, if you already did file, that becomes irrelevant.
"Do I really need a 1040X with nothing updated just to include the explanation with the forms? "
There are at least two reports on this forum that IRS sent the Form 8606 back because it was not attached to Form 1040-X.
Note: when you are not changing any dollar amounts on your amended tax return, you can leave all the lines 1-23 EMPTY.
@Anonymous
Note: when you are not changing any dollar amounts on your amended tax return, you can leave all the lines 1-23 EMPTY.
I pointed this out earlier above.
You don't have to dig out copies of old tax returns that you might have lost or discarded.
You need to know your filing status that year.
Multiple issues:
1. 8606 carryovers on cost basis were not accurate on multiple years going back many years ago. As others have pointed out, prior year total basis on line 2 did not always pull into the following year’s 8606 so I have several I need to amend.
2. to further complicate, there are a few intervening years where I don’t have access to my return or a 5498 to confirm a contribution was made (although it likely was as the year prior to the missing year and the year after I did) and if one was I can’t confirm it was non deductible as I don’t have the tax return. The tax year is 16 years ago and from what I can gather, you can’t go back that far to request a transcript or copy of a return from IRS? I know through online requests they don’t go back that far but if you request a return via the 4506 form will they go back that far?
3. when amending the 8606 for the intervening year where I can’t verify the contribution amount or its deductibility status, do I just put a zero for contribution and calculate the basis based on whatever the prior year’s verifiable contribution was? For the total basis I would only carryover what I could verify from the prior year’s return?
IRS Pub 590-A says:
Failure to report nondeductible contributions.
If you don’t report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made.
I would interpret that to mean that you must omit from line 1 of an amended Form 8606 for a particular year any amount for which you cannot provide evidence that you 1) made the traditional IRA contribution for that year and 2) that you did not deduct the contribution on your tax return for that year.
a few more questions.
1. am I correct to assume that I cannot obtain any tax return documents such as 1040s and 8 606s that go back 16 years or longer?
2. without being able to obtain those very old returns, I have no way of knowing if there is an 8606 to correct for that year (or whether I took it as a deductible contribution), so do I start with whichever year I do have returns for and supporting documentation and use that as my starting point to track basis and and exclude the unknown information possibilities from the prior years?
thanks
@KREC wrote:
a few more questions.
1. am I correct to assume that I cannot obtain any tax return documents such as 1040s and 8 606s that go back 16 years or longer?
2. without being able to obtain those very old returns, I have no way of knowing if there is an 8606 to correct for that year (or whether I took it as a deductible contribution), so do I start with whichever year I do have returns for and supporting documentation and use that as my starting point to track basis and and exclude the unknown information possibilities from the prior years?
thanks
1. The IRS can only provide copies of tax returns for 7 years, and transcripts (an electronic summary) for 10 years.
https://www.irs.gov/individuals/get-transcript
https://www.irs.gov/taxtopics/tc156
2. You can only claim what you can prove if audited. You will need to get your tax transcripts and IRA records together and compare them. You will need to match contributions to your tax return, determine if you took a tax deduction or not, and whether or not you filed form 8606 (and if it was correct or not). Whatever is the earliest year you can prove everything, you go forward from there and whatever happened before that is lost.
I agree with Opus 17.
Note that Form 8606 is one of the forms that the IRS says that you should retain forever. Given that, one can probably infer that, absent the ability to produce a Form 8606 for a particular year, the IRS can probably take the position that one was not filed for a particular year.
Thank you. Additional question. $3000 originally went to Roth then was rechristened to a Traditional IRA. When it came over to the IRA it was about $15 less than the original contribution, assuming there was a loss during the time between original contribution and recharacterization. Which number do you use for line 1, the original $3000 or the new number ($3000-$15)? If you also then contributed additional $1000 directly to the traditional, would you add both to come up with line 1? What about the reverse, if Roth contribution comes back with earnings when characterized to TIRA, do earnings get included or excluded from line 1 of 8606?
Thank you. Additional question. $3000 originally went to Roth then was rechristened to a Traditional IRA. When it came over to the IRA it was about $15 less than the original contribution, assuming there was a loss during the time between original contribution and recharacterization. Which number do you use for line 1, the original $3000 or the new number ($3000-$15)? If you also then contributed additional $1000 directly to the traditional, would you add both to come up with line 1? Also what about the reverse, if characterized Roth comes back to IRA with earnings do the earnings get reported in line 1 or just whatever the original Roth. Contribution was?