How to report Roth excess contribution withdrawal to IRS? Is there a form# we need to use?

[himallik]

I contributed to Roth IRA by mistake. I did not invest the amount.I realized the mistake and removed the excess contribution with in a week. Brokerage firm sent 1099R with J8 CD code. 

IRS sent me letter about 1099R J8 and it keeps as showing the withdrawal amount as income and asks me to pay the tax difference.   I sent letter explaining the reason for withdrawal and Roth acc statement with Roth contribution and withdrawal details. IRS still sent me letter back asking me to pay the tax difference. I also called and spoke with them before. I am not sure how to how to make IRS understand that this is withdrawal of excess contribution. Any guidance please? 

Is there a form# we need to use? Or do I need to file amendement to the tax returns? 

[dmertz]

Code J8 explicitly indicates a return of contribution, so there should be no need to convince the IRS of that.  The only thing that the IRS might need to be convinced of is the taxable amount.  Did the code J8 Form 1099-R have any amount in box 2a?  If so, that represents the earnings required to be distributed with the return of excess contribution and is subject to tax and, if you were under age 59½, to an early-distribution penalty.  If you were over age 59½, Form 5329 is needed to show that the amount in box 2a is not subject to an early-distribution penalty.  The difference between the amount in box 1 and a nonzero amount in box 2a would be the amount of your excess contribution that was returned and is not taxable or subject to penalty.  (If, due to investment losses while the money was in the account, the amount distributed was less than the amount being returned, the amount in box 2a would be zero and there would be no tax or penalty on the distribution.)

The explanation that you provided should have been sufficient to convince the IRS that only the amount in box 2a is subject to tax and penalty.  If the IRS is telling you that you are subject to tax on the entire amount in box 1, perhaps you need to get help from a Taxpayer Advocate to explain to the IRS that the IRS is incorrectly treating the entire distribution as taxable.

[dmertz]

Your explanation should have included details of the date and amount of the original contribution, the date and amount of the contribution that was returned, and the adjusted amount that was distributed (the adjustment being for investment gain or loss while the contribution was in the account).

[himallik]

Thanks a lot for the detailed response dmertz. I really appreciate it.
-- Amount in box 2a. is zero.
-- I did provide detailed dates and corresponding statements to IRS.

There were couple of other items in the previous IRS letter. Now they closed them. This item is still left. I think they did not properly go thru my response for this item before. I will resend with detailed explanation and evidences etc. I hope they will close this as well.

[dmertz · Accepted solution]

The only reason that the IRS might legitimately treat a code J8 Form 1099-R with a zero in box 2a as entirely taxable is if they did not receive any explanation indicating the original contribution that was returned; without explanation mentioning the Roth contribution that was being returned the IRS might assume that the Roth IRA custodian incorrectly reported the distribution and that it constituted a regular distribution instead.

The explanation that you are reiterating to the IRS should be sufficient to convince them that the distribution is not taxable or subject to penalty, but IRS examiners sometimes still get it wrong.  Sometimes the help of a Taxpayer Advocate is needed to convince the IRS of the IRS's error.

[Meime]

I am over 60 years old. I contributed $7,000 to Roth IRA in 2022 by mistake. I withdrawal the same amount ($7,000) several days later-as soon as I realized I was not qualified.

Last week, the bank sent me form 1099 R.  In Box 1: Gross distribution $7,000. Box 7: Distribution code J8; the rest of boxes on 1099 R form are: 0.00.

Please tell me how do I avoid state tax (Pennsylvania) for this returned contribution?

Thanks!

[ThomasM125]

It should not be taxable on your Pennsylvania return based on your Form 1099-R entry on your federal return, assuming you did not have any earnings on the funds contributed, which I assume you didn't since it was only there for seven days.

[Meime]

Thank you so much!