CP2000 Question IRA Contribution

[jenandjj]

I received a CP2000 notice from the IRS where they adjusted (increased) my income by $12,000, the amount my wife and I each contributed to our IRA.  We made the deductions in our tax return, but the CP2000 notice wanted to change the deductions to 0.  They said their proposed adjustment was triggered by the Form 5498 documents that were reported by our financial institutions.   This leaves me baffled as the Form 5498 documents from our financial institutions show that we contributed the proper amount to our annual IRA.

I called the IRS and the representative's response was for me to disagree with the CP2000 notice and send in my Form 5498 documents as proof.  But I'm still confused because I don't think I completely understand the situation and/or haven't received an adequate explanation of the situation.  Why would a Form 5498 that clearly shows we made our maximum IRA contributions lead the IRS to remove our deduction?

[NCperson]

@jenandjj 

were you eligible for the IRA contribution?

and when  you say "our IRA", you really mean $6000 to EACH of your RESPECTIVE IRAs? 

you can't contribute $12,000 to ONE IRA and an IRA is for the benefit of ONE of you;  a single IRA can't have TWO beneficiaries.. 

[jenandjj]

Thank you for your response.  Yes, we each made $6000 contributions to our respective IRAs.

I'm hoping your explanation is the correct one as that is all I can think of too.  I just assumed that the IRS wouldn't make such a blatant and costly mistake.

[Mike9241]

The 5498 will reflect the IRA contributions. the issuer has no way of knowing whether or not you are qualified to make the contributions. This doesn't mean the IRS is correct only to clarify what the 5498 represents. IRA rules are contained in PUB 590-A but if you used Turbotax, then the questions it asked should have alerted you to any excess contribution.

[dmertz]

First, make sure that the Forms 5498 show $6,000 in each box 1 and has the box-7 "IRA" checkbox marked.  If not, the contribution is not being reported as a regular traditional IRA contribution.  Make sure that the year of the Form 5498 corresponds to the year of the tax return on which the contribution was reported.

Even if you had compensation to be eligible to make a traditional IRA contribution, it's possible that a traditional IRA contribution is not deductible based on your participation in an employer-sponsored retirement plan.  For a W-2 employee that would be indicated by the employer marking box 13 Retirement plan on the W-2 and if you failed to enter that marking into TurboTax, TurboTax won't know to check to see if your MAGI puts you or your spouse above the threshold for being able to deduct the IRA contribution.  If wither of you were self-employed and made a self-employed retirement contribution, that would also be considered as being covered by an employer-provided plan.

Did the IRS change any item of income or other deduction that brought you above the threshold for being eligible to deduct a traditional IRA contribution when covered by an employer-provided retirement plan?

[jenandjj]

Thank you for your response.  Yes, we qualify according to that criteria.  Both our Form 5498 forms show that they are IRA contributions, and our W-2s show that we are not part of any employer sponsored retirement plan.

[dmertz]

In that case, only the IRS can explain why they think that the contributions are not deductible because the IRS seems to be wrong based on the information that you have provided here.