backdoor Roth tax payment procedure

[Username5]

I made several Tira conversions to Roth in '24.  I made IRS "direct payments" online to cover my anticipated taxes on the conversions.  This totaled a 6 figure payment and were listed in TTax  "Tax Payments Worksheet", Lines 18b & 18c.  These payments were made at the time of the conversion.  The payment is reported on the 1040 line 25c as a withholding.

The mutual fund company did not give me any tax forms for these transactions.  I have reported the conversions on the 8606-T (and S). 

My problem is that the IRS sent me a check for the 6 figure amount as an 'overpayment'.  I marked this check void and returned it with a letter of explanation that it was for tax on the conversion.

The IRS replied to my letter saying in part "Our system shows tax of X and withholding of Y".  The amounts X and Y are correct and listed on my 1040 line 24 and 25d.  The letter further states "We received two payments of 'A' & 'B' on <Date, 2024>."  A & B match the numbers reported above on lines 18b & 18c.  And they sent a new 6 figure check as a refund.

IMO They seem to be confusing withholding with direct payment.  Perhaps I did not place the direct payment numbers in the correct spot on my return.  Whatever the case it appears I will get nowhere returning the 6 figure check again.  I'd love to keep it but I would not love being discovered and explaining this stuff.

I tried calling them when I received the first check and after 6 hrs of getting no where not getting someone to help me I gave up.  

If there is a glaring error in reporting with the info I gave, I will file an amended return.  Assuming TTax put the numbers in the right spot, I am looking for advice on how to correct this apparent error on the part of the IRS.

[Username5]

OP here.  The subject is misleading.  It is not a backdoor Roth.  It is a Conversion from Traditional to Roth, I am a retired person who already is doing RMD's.  I tried to edit the original post but was unable.

[baldietax]

I don't know all the mechanics but maybe their system hasn't caught up with what you filed as withholding wasn't actually withholding, and instead they are showing direct payments which are classified as estimated taxes.  So until they figure out they don't have the withholding they think you overpaid? - something like that.

the issue may be in your return, these payments shouldn't be "withholding" they are estimated taxes.  you should also have a 1099-R for the conversion with the appropriate coding and withholding, if you input the 1099-R into TT using your payments as withholding that's probably where problems began.  you may also then need to file Form 2210 Annualized Income method to line up the income/tax liability timing with the ES payment timing otherwise you could get an underpayment penalty especially if your conversions/payments were later in the year.  by entering it as withholding this issue may have been bypassed as withholding is considered "timely" whenever it happens.

doing a Roth conversion with withholding results in the tax being paid out of the IRA distribution not your non-retirement funds so less goes into your Roth, so I think you did it correctly with estimated tax to payment to the IRS.  Tho, if you have this situation again be aware of the estimated tax safe harbor, you only need to pay 100% of last year's tax (110% if AGI > 150k) or 90% of current year's tax whichever is smaller.  If you intend a very large Roth conversion then you may be better off paying ES to make 100/110% of last year's tax, as long as that is paid evenly and quarterly, then you don't need to pay the balance of the tax until final filing.

not a CPA/Expert just my quick thoughts from what you've described.

[Username5]

@Balditax:  Thanks, but near as I can tell I did the TTax 1099-R correctly.  There is a withholding for my RMD and no more than that.  The only place in my filed return that shows the correct numbers withheld from the conversion (withheld from outside funds) is on the TTax page "Estimates & Other Taxes" -> "Other Income Taxes".   The amount I withheld when using "Direct Pay" had a cushion and I made the payments within 2 days of the conversion.  I kept copies of the transaction confirmations to avoid underpayment penalty.  TTax form said I did not need to file a 2210 so I didn't.  The IRS has my return because they have mentioned all of the correct amounts.  And, because I paid the direct pay my taxes paid are well over 100% of prior year (which is likely why TTax said I didn't need to file a 2210), but you raise a good point as I am going to convert more this year and probably won't be able to cough up enough outside cash to meet 100% of this year.   I'll try to remember this next year.

My 1099 is "taxable amount not determined" and coded IRA 7 which is correct.  It shows the total amount distributed without mention of the conversion.

I guess I simply need to send another letter to IRS spelling out "their error" but they seem to be set on giving me back my tax payment anyway.  Maybe the "Operations Manager" has been in the seat only since Jan.

[baldietax]

ok when you do directpay you have to give a reason from the drop down, what did you use for that as there is no option to classify that as "withholding", did you use "estimated tax".  Then in TT I'm guessing you used "other income taxes" / "withholding not already entered on a W-2 or 1099"? - as opposed to the "estimates" category.

[Username5]

In IRS Direct Pay I flagged it as Estimated Tax.

In TTax it is entered under "Tax withholding that you haven't entered yet", Federal withholdings.  I did not enter them under Estimated Taxes because I did not file a form 1040ES.  I can see this may be a possible cause for my problem.

And since I don't have wages I don't have normal withholdings.  My normal withholdings are determined by a % that I elect when setting up my RMD and pension plan payments.  I've never in 20 yrs of retirement filed a 1040ES as I've always made sure I was covered by withholdings of the individual payments.

But my real problem is how to get the IRS to accept that I don't deserve to have a 6 figure refund which is quoted here "We changed your 2024 form 1040-SR to match our record of your estimated tax payments,".  In other words, they see it as an estimated tax payment.

So on my return, I entered the amount on line 25c and apparently I should have entered it on line 26.  Is that a correct assumption?