correcting basis in traditional IRA from years ago

[aac351]

I am trying to reconstruct the basis in one of my traditional IRA accounts, and I realized that in one of my returns from 5 or 6 years ago, I made a nondeductible $5,500 contribution that I mistakenly listed as a Roth IRA contribution in that year's tax return. From searching around, it seems that the way to correct this mistake and have it added to my basis is to send in a form 8606 from that year to the IRS. Some questions that I had were:

1. Do I need to amend my return from that year? It's already past the three year statute of limitations and I don't think it affects the amount of taxes I would have had to pay that year, but I wanted to double-check.

2. What kind of documentation or explanation is needed when I send in the form 8606? Should I write a cover letter explaining my mistake? I also have the form 5498 which says that this was a traditional IRA contribution, so should I include a copy of that in mail?

3. Am I going to get anything back from the IRS, like an official confirmation stating that my basis has indeed increased by 5500?

4. How will this be reflected when I do my taxes next year? Turbotax should already be tracking my basis from previous years, so if there is a page asking me to confirm the amount, I would just manually enter the new & higher amount instead?

5. Finally, is there a way to send this in online, or does it have to be by mail?

[DanaB27 · Accepted solution]

You can file Form 8606 as a standalone form if needed as long as it doesn't affect anything else on your tax return. Please see Form 8606 for prior years.

Yes, it is a good idea to include an explanation statement to explain the error to avoid the penalty for failing to file Form 8606.

If the IRS has any further questions they will contact you.

Yes, on your 2021 return you will enter the correct higher amount.

No, you will have to mail it.

Edited 4/18/2022 | 9:25am PST]

@aac351 

[aac351]

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@DanaB27 wrote:

If the basis wasn't used then you will have to correct the Form 8606 for the following year's too.

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What do you mean by the basis wasn't used? I haven't fixed it in any of the subsequent years (meaning I'm still 5500 short as of the 2021 return), so does that mean I need to file a corrected form 8606 for every single year since the mistake?

[aac351]

@DanaB27 Do I need to file the form 8606 for only the year I made the mistake, or every year since then?

[DanaB27]

You will file the missing Form 8606 and then when you file your 2021 tax return and change the basis TurboTax will create an explanation statement to explain the change on your 2021 Form 8606.

@aac351

[aac351]

Ok, and earlier you mentioned that if the IRS needed more information, they would contact me. If I don't hear back from them, is it safe to assume that they have accepted everything I sent them and the basis is fixed?

[DanaB27]

Yes, if you don't hear anything that will mean that the IRS has accepted everything.

@aac351