In December 2016 we took our first ever IRA distributions. While preparing our tax forms for 2016 I reviewed the non deductible contributions we both made to our individual IRA accounts over the years.
I was shocked to find the last 8606 I filed was in 1994, and have not filed any since then although we have made non deductible contributions between 1997 and
2010.
Is there anything I can do to correct this? Didn’t the IRS get 5498’s from the IRA custodians during these years?
You can file delinquent Forms 8606, even as far back as 1995, on a standalone basis, meaning that you can file them without amending your tax returns. There can be a penalty of $50 for not filing Form 8606 on a timely basis, but the penalty can be waived if you can show reasonable cause for not filing.
File these delinquent forms separately from your tax return.
See this IRS link regarding Form 8606 and see this information for suggestions regarding “reasonable cause.”
You can file delinquent Forms 8606, even as far back as 1995, on a standalone basis, meaning that you can file them without amending your tax returns. There can be a penalty of $50 for not filing Form 8606 on a timely basis, but the penalty can be waived if you can show reasonable cause for not filing.
File these delinquent forms separately from your tax return.
See this IRS link regarding Form 8606 and see this information for suggestions regarding “reasonable cause.”
Link to 8606 form <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f8606.pdf">https://www.irs.gov/pub/irs-pdf/f8606.pdf</a>
Link to 8606 instructions <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i8606.pdf">https://www.irs.gov/pub/irs-pdf/i8606.pdf</a>
The links that macuser_22 provided are for the 2016 Form 8606. You actually need to use the correct year's Form 8606 for each year that you are reporting late. Search for 8606 on the IRS website for a list of each prior year's Form 5329 and instructions:
<a rel="nofollow" target="_blank" href="https://apps.irs.gov/app/picklist/list/priorFormPublication.html">https://apps.irs.gov/app/picklist/list/priorFormPublication.html</a>
Is it required to file 1040X and send with 8606 form for each year it is missed?
I have the same problem and one of the IRS help on line advise to file 1040X along with 8606 form.
Thanks for your suggestion
@Nari12 wrote:Is it required to file 1040X and send with 8606 form for each year it is missed?
I have the same problem and one of the IRS help on line advise to file 1040X along with 8606 form.
Thanks for your suggestion
A 1040X is only required if you are changing from a deductible or non-deductible contribution or visa-versa that would require either paying additional tax or getting a refund. Simply reporting a missed 8606 that should have been included with the original tax return does not require a 1040X because you are not amending anything, you are just supplying an original form that was missed.
And yes, a separate 8606 for the tax year that is was required must be filed for each year.
8606 form are only required if:
1) You make a new non-deductible Traditional IRA contribution.
2) You take a distribution from a IRA that has a after-tax "basis".
3) You make a conversion of a retirement account to a Roth IRA
Past year forms for each here can be downloaded form the IRS site:
https://apps.irs.gov/app/picklist/list/priorFormPublication.html
If none of those occurred, then the last filed 8606 remains in effect
I see no reason to file numerous forms.
Here's my suggestion:
Attach form 8606 to your current or next form 1040 filing..
Show the correct prior years basis (total of all non-deductible contributions)
OR if you made a non-deductible contribution last year,
file form 1040X and attach 8606
Show the correct prior years basis (total of all prior non-deductible contributions and the last contribution )
In 1040X Part iii explanation, state:
"Neglected to include form 8606"
"Attach form 8606 to your current or next form 1040 filing..
Show the correct prior years basis (total of all non-deductible contributions)"
You must do this to compute the correct taxable amount on your RMD.
@fanfare wrote:I see no reason to file numerous forms.
Can you provide an authority that says that is allowed?
I would suggest that to properly comply with IRC 408(o)(4), numerous tax court decisions and the IRS rules that provide for a $50 penalty for each tax year that a 8606 was required but not filed, that separate 8606 forms be filed for each missed year with an explanation for the missed 8606 form an a request to waive the penalty.
You would be required to file prior forms only if the IRS audits your return and makes an issue of it.
@fanfare wrote:You would be required to file prior forms only if the IRS audits your return and makes an issue of it.
Are you serious? You "only" need to file a required form if audited? How about the tax law that requires it? Is it OK to under report income until you are caught? I can't believe you actually said that.
Unfortunately, as tax court cases show, the IRS often does investigate that proper 8606 forms were filed when nondeductible contribution basis is claimed and then they deny the claim if the forms are missing. The IRS probably does not look if 8606 forms were filed, year-to-year, but when distributions are taken and a basis is claimed then can, and do, verify the basis against filed 8606 forms.
Best to do it right to start with and not open a can of worms later.
If nondeductible contributions are not reported on Form 8606 for the years for which nondeductible traditional IRA contributions were made, the IRS takes the position that these contributions do not represent investment in the contract that can be distributed tax free. Unless the IRS has recently changed their methods, to avoid taxation of basis under these circumstances would require taking the case to the Tax Court and providing sufficient evidence to the court that the individual indeed has basis in nondeductible traditional IRA contributions. The Tax Court has in several past cases of unreported nondeductible traditional IRA contributions allowed the basis to be reconstructed despite the individual not filing Forms 8606 as required by law, but why would anyone want to risk having to go to court when the whole situation can been avoided by properly filing the late Forms 8606.
I did not know that i have to file form 8606 when i make non deductible contribution in 1994 and 95 ( total $4000). I did not contribute any more since then.
However in 2017, I was advised to file form 8606 year 2017 to report the the prior basis ($4000 ) since i never did before.
First I understand now that I have to file 2 correct year 8606 ( 94 and 95) , but still unclear if i need to send along with 1040X year 94 and 95 to amend the mistake.
Second, do I make a mistake again by sending the 2017 year 8606 to report the previous basis?
If so how do I correct my second mistake?
Do I need to send 1040X year 2017 stating in part iii " error in reporting 8606 form".
Or should I just send the 8606 year 94 and 95 and leave the 2017 tax form as is?
Third, how should i send all those forms, mail all in one envelop or mail them separately
Thanks to you all!
I have a slightly different issue. I did non-deductible IRA contributions from mid 2000s to now. When I submitted my 8606s, I just noted the contribution for that year, and I did not report the entire value of my IRA with pretax (401k rollovers) and posttax dollars. Am I allowed to go back and make the corrections?
Thanks!
brb408wpb, have you made any distributions or Roth conversions from your traditional IRAs? If not, nothing needs correcting. Although you probably should have previously included on line 2 of Form 8606 an adjustment for the after-tax money rolled over from the 401(k), you can do that on the next Form 8606 that you file as long as you have not made any distributions or conversions prior to 2019. Such an adjustment requires your tax return to include an explanation statement describing the adjustment. Your year-end balance in traditional IRAs is only relevant to determining the taxable amount of distributions and conversions.
If you have made distributions or Roth conversions prior to 2019 after establishing basis in nondeductible traditional IRA contributions and did not prepare Forms 8606 correctly, the corrections might be rather complex.
If your Forms 8606 did not include on line 2 the previous year's Form 8606 line 14 amount, that's another problem that will need to be corrected.
You do NOT send in a 1040X for this correction ... the form 8606 can be filed by itself as a stand alone form ... make sure to sign it.
Macuser_22,
Thanks for all your advice and support of the community.
What are your thoughts about a situation where no 8606 have been filed for ten years. No deductions have been made. No distributions have been made. IRA Traditional and Roth IRA exist. Prepared to file all back 8606 for each year. The question is where to start and how to calculate basis in 2019? If the prior year 8606 forms were not completed, what basis to use on line 2 of the 2019 form?
Thanks!
@69VanNuys - Start with the first year that there was a non deductible contribution and fill out a 8606 form for THAT year with the non-deductible contribution on line 1. The amount on line 14 will carry to line 2 of the next years 8606 and will be added to that years line 1 contribution. Repeat for each year that there was a non-deductible contribution until current.
You can download past years 8606 forms (and instructions) from the IRS here:
Mail the 8606 forms to the IRS:
@69VanNuys - The above answer assumes that there were no distributions from any Traditional, SEP or SIMPLE IRA at any time after the first non-deductible contribution or that would need to be accounted for and would make the 8606 much more complicated.
Thank you! Starting from year one is the only way I could figure to do it, u less someone had an idea about doing someone in 2019.
Each year must be reported on the 8606 for that year of the IRS will disallow any use of the non-deductible contribution on a distribution. Line 14 on the last filed 8606 can only come from the previous 8606 form. They cannot be combined.
Note that the IRS "could" assess a $50 penalty for each missed 8606 form.
From 2017 IRS Pub 590A
"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."
If I should start a new post just let me know. But my situation is very similar. I had non-deductible contributions 2 years only.
In 2009 I filed form 8606. No problem.
In 2010 I filed form 8606, but neglected to list and add the basis from the 2009 form. I used TurboTax both years, so I'm not sure why TT didn't bring it forward automatically. A bug perhaps?
Now in 2019 I've taken my first ever distribution from a traditional IRA (a rollover IRA that used to be my 401k), so I need my correct basis. I assume that I need to file an amended 8606 for 2010 (using that year's form) and a letter of explanation. I am hoping that nothing more will come of it. Financially it doesn't make sense to pay penalties to recover the basis from 2009 - it's a small enough amount that paying taxes on that amount again would probably be cheaper than a penalty.
My first question then is, if I file an amended 8606, can I expect to get a free pass, or a fine? And if it's a fine, can I just use the (too small) basis from the 2010 form without getting a fine?
Thank you.
@Mikellekim wrote:
If I should start a new post just let me know. But my situation is very similar. I had non-deductible contributions 2 years only.
In 2009 I filed form 8606. No problem.
In 2010 I filed form 8606, but neglected to list and add the basis from the 2009 form. I used TurboTax both years, so I'm not sure why TT didn't bring it forward automatically. A bug perhaps?
Now in 2019 I've taken my first ever distribution from a traditional IRA (a rollover IRA that used to be my 401k), so I need my correct basis. I assume that I need to file an amended 8606 for 2010 (using that year's form) and a letter of explanation. I am hoping that nothing more will come of it. Financially it doesn't make sense to pay penalties to recover the basis from 2009 - it's a small enough amount that paying taxes on that amount again would probably be cheaper than a penalty.
My first question then is, if I file an amended 8606, can I expect to get a free pass, or a fine? And if it's a fine, can I just use the (too small) basis from the 2010 form without getting a fine?
Thank you.
If you mean amending the 2010 8606 to add the 2009 carry forward basis to that the total of both will carry forward, then I do not believe that there would be any penalty at all for amending a prior filed 8606. The only penalty that I know of is the failure to file a 8606 at all but you did file one.