Form 8606 - Wrong Basis Tracking from 2005

[yfegade]

Hello All,

It seems I have been tracking my nondeductible IRA basis wrong since 2005. In 2005, I started working for an S-Corp and they offered me a company contributed SEP IRA. About 4 years (2005 to 2008), I gave my personal taxes to an accountant. He tracked my nondeductible IRA basis wrong by not taking into account the value of my SEP IRA. He told me that since SEP IRA is company funded, I don't have to report it on form 8606 (where it asks for end of year values of traditional, SEP and SIMPLE IRA).

I started doing my own taxes from 2009, but following his advice did not include value of my SEP IRA on form 8606 until now. And now upon reading more, I realize that he and I was wrong. As a result, my form 8606 is tracking my nondeductible IRA basis wrong.

How can I fix that mistake? Is there anyway to calculate value on Form 8606, Line 2?

[macuser_22]

Have you taken distributions from the IRA or SEP?

SEP contributions are before tax contributions.    There should  be no SEP basis to report on a 8606, but the total basis in all IRA accounts is used for both SEP and IRA distributions.

[yfegade]

Yes, from 2012 till now I have taken distribution from my traditional IRA and converted them to Roth IRA.

I understand that SEP contribution is not going to affect my basis, but the conversions from traditional IRA to Roth IRA will change my basis and affect how much of that conversion is taxable.

By not including value of SEP IRA on line 6 of form 8606 over the years, I may have messed up my taxes a bit.

Anyway to fix that or at least correct basis going forward?

[macuser_22 · Accepted solution]

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@yfegade wrote:

Yes, from 2012 till now I have taken distribution from my traditional IRA and converted them to Roth IRA.

I understand that SEP contribution is not going to affect my basis, but the conversions from traditional IRA to Roth IRA will change my basis and affect how much of that conversion is taxable.

By not including value of SEP IRA on line 6 of form 8606 over the years, I may have messed up my taxes a bit.

Anyway to fix that or at least correct basis going forward?

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It does not change the basis, but it will affect the taxable amount. 

The 1099-R distribution question for the basis specifically asks for the year end value of ALL existing Tradition, SEP and SIMPLE IRA's so the existing basis can be properly pro-rated between the current years distribution and remaining value.  That amount goes on line 6 of the 8606 form.

If you under paid the tax for those years then yiu need to amend and file new 8606 forms and pay the tax.  While the 3 year statute of limitations for amending applies to refunds, there is not statute of limitations for underpaid tax.   The IRS can go back 7 and sometimes 10 years.

[yfegade]

Thanks. I know I made a mistake. TurboTax clearly says include SEP IRA value, but I went by my previous accountant advice and ignored it.