IRS Audit - Backdoor Roth

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zebrafish
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Re: IRS Audit - Backdoor Roth

Post by zebrafish » Sun Jun 18, 2017 10:11 pm

I've just received a CP2000 for 2015 (!) tax year in regards to backdoor Roth and IRS claiming I owe taxes on this. Same issue as described above where I used Turbotax for my return. IRS seeking almost $5000 in back taxes/penalties/interest. No audit.

Submitting 8606 and 5498 to IRS today.

Will post follow up about resolution/non-resolution.

United2008
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Re: IRS Audit - Backdoor Roth

Post by United2008 » Mon Jun 19, 2017 1:31 pm

A couple of law professors (Manns and Todd) recently published an article suggesting that the 6th Circuit's recent decision in Summa Holdings supports the backdoor roth. I can't republish the article here but perhaps someone else can dig it up via google or SSRN.

Goodman60
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Re: IRS Audit - Backdoor Roth

Post by Goodman60 » Mon Jun 19, 2017 3:04 pm

Seems like many Bogleheads have gotten CP2000 notices about 2015 backdoor Roth conversions during the past few weeks:

viewtopic.php?f=2&t=221314

Goodman60
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Re: IRS Audit - Backdoor Roth

Post by Goodman60 » Fri Aug 25, 2017 7:27 pm

Update: For what it's worth, 2.5 month after reviewing copies of the relevant parts of the original tax return, the IRS has decided that the backdoor Roth, in my circumstance, was done correctly and they closed the matter. Have the rest of you gotten your backdoor Roth inquiries settled too?

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Re: IRS Audit - Backdoor Roth

Post by LadyGeek » Fri Aug 25, 2017 9:16 pm

This thread is now in the Personal Finance (Not Investing) forum (taxes).
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mrc
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Re: IRS Audit - Backdoor Roth

Post by mrc » Sat Aug 26, 2017 6:05 am

United2008 wrote:
Mon Jun 19, 2017 1:31 pm
A couple of law professors (Manns and Todd) recently published an article suggesting that the 6th Circuit's recent decision in Summa Holdings supports the backdoor roth. I can't republish the article here but perhaps someone else can dig it up via google or SSRN.
The 6th Cir. Court of Appeals opinion discusses how the substance-over-form doctrine relates to funds transferred into a Roth from a DISC (domestic international sales corporation). Although not a typical backdoor maneuver, there is discussion about taxpayers using DISC transfers (and presumably other methods such as backdoor) to overcome the annual (income adjusted) contribution limits even if that wasn't the initial intent of both the Roth IRA and DISC provisions, concluding:
The last thing the federal courts should be doing is rewarding Congress’s creation of an intricate and complicated Internal Revenue Code by closing gaps in taxation whenever that complexity creates them.
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TIAX
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Re: IRS Audit - Backdoor Roth

Post by TIAX » Sat Aug 26, 2017 11:30 am

United2008 wrote:
Mon Jun 19, 2017 1:31 pm
A couple of law professors (Manns and Todd) recently published an article suggesting that the 6th Circuit's recent decision in Summa Holdings supports the backdoor roth. I can't republish the article here but perhaps someone else can dig it up via google or SSRN.
The article is available at SSRN here.
The abstract:
Invoking allusions to Caligula and Roman tax law, the Sixth Circuit, in Summa Holdings, reversed the Tax Court and held that the Commissioner could not use the substance-over-form doctrine to prevent taxpayers from combining the tax savings effects of a domestic international sales corporation with a Roth IRA. In this article, we argue that the Summa Holdings rationale supports and allows the backdoor Roth IRA — that is, making a nondeductible, traditional IRA contribution and then converting it into a Roth IRA (ostensibly to avoid the income limits on direct contributions to Roth IRAs).

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unclescrooge
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Re: IRS Audit - Backdoor Roth

Post by unclescrooge » Sun Aug 27, 2017 1:17 am

Muchtolearn wrote:
Tue Mar 27, 2012 7:13 pm
It is possible that IRS is going to stop this and has started with individuals who have done this. Clearly the back door ROTH is an intent to do what it does. We all know it is not what it was intended for. I suspect back door ROTH's will be disallowed and penalized. I wouldn't do it anymore if I were you (you being all of you).
I don't know.
What was it intended for?

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Earl Lemongrab
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Re: IRS Audit - Backdoor Roth

Post by Earl Lemongrab » Sun Aug 27, 2017 1:41 pm

unclescrooge wrote:
Sun Aug 27, 2017 1:17 am
Muchtolearn wrote:
Tue Mar 27, 2012 7:13 pm
We all know it is not what it was intended for.
I don't know.
What was it intended for?
The "it" is removal of income test for IRA conversions to Roth. The intent was to get high-income/tax-rate people to do conversions. That puts money into the tax coffers now. Backdoor Roth is a side-effect.
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unclescrooge
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Re: IRS Audit - Backdoor Roth

Post by unclescrooge » Mon Aug 28, 2017 12:00 am

Earl Lemongrab wrote:
Sun Aug 27, 2017 1:41 pm
unclescrooge wrote:
Sun Aug 27, 2017 1:17 am
Muchtolearn wrote:
Tue Mar 27, 2012 7:13 pm
We all know it is not what it was intended for.
I don't know.
What was it intended for?
The "it" is removal of income test for IRA conversions to Roth. The intent was to get high-income/tax-rate people to do conversions. That puts money into the tax coffers now. Backdoor Roth is a side-effect.
Makes sense. Thanks!

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