IRS says we owe taxes from 2015 on $11000 as retirement income. We contributed to an IRA and filed 8606 in 2014. The $11000 was taxed as it was earned. Y taxed again?

[jennimcbride]

In 2014, $11000 of our after taxed earnings was deposited as nondeductible contributions into an IRA. We received a letter from the IRS saying that we owe taxes on the $11000 Retirement Income from 2015. Why would we be taxed twice? Is this a mistake?

[fanfare]

you'll owe tax on 11,000 if you put 11,000 in in 2014 and took it out in 2015.

It seems IRS has a different understanding of what you did in 2015 than you do.

Why would IRS think you took it out? You will have to respond with an explanation that you did not take the funds out in 2015.

[SteamTrain]

But they also indicate they entered as "non-deductible" contributions.

A couple of things come to mind that are potential complications.

1)  We put into an IRA.  One account for one spouse? or two separate $5500 IRAs...one for each spouse?

2)  When removing the $$ in 2015, if you had any other IRA accounts, non-deductible contributions cannot be removed all at one time as all being nontaxable.  Example:  Put in 11,000 in 2014 as nondeductible contribution, but (say) you have 110,000 of total IRA accounts.  IF you remove 11,000 in 2015, then only ~10% is not taxable when removed (assuming only that 11,000 was the only non-deductible contribution ever done).  The non-taxable part has to be removed as a proportion of the total IRA account holdings. (.....  and each spouse's IRA holdings must be handled separately too, if you removed from each spouse's IRA accounts)

[Critter]

Sounds like you failed to file a form 8606 in 2015 to indicate the distribution was from non deductible contributions ... this is an easy fix ... you can respond with that form filled in.

[Hal_Al]

Both SteanTrain and Critter#2 are correct:
1. You cannot remove only the after tax money from a Traditional IRA. You treat any distribution as a mixture of taxable and non taxable money.
2. You must submit form 8606 to show how you calculated the taxable portion. So even if that $11,000 was all your IRA money, form 8606* is still required.

*Form 8606 has multiple uses. You used it (line 1-5) to report non-deductible contributions in 2014. You should have used it again, in 2015, to report the taxable portion of the distribution (lines 6-15)