Backdoor Roth Conversion and IRS trying to tax it

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masrepus
Posts: 6
Joined: Fri Apr 24, 2015 12:14 pm

Backdoor Roth Conversion and IRS trying to tax it

Post by masrepus » Sat Jun 17, 2017 9:57 am

Anyone know what supporting information to use to support that there are no taxes on a backdoor Roth conversion? Am i right int that the conversion should not have triggered any taxes since it was 5500 into the IRA and then converted to Roth so there are no gains to tax?

In 2015 I completed a conversion for my wife. We make too much to contribute directly to a Roth IRA and I have a large IRA so I put 5500.00 in an IRA for my wife and then immediately converted it to the ROTH, so there were no gains to tax. My wife doesn't work but does sell Living Oils so I guess that self-employed business is what triggered the audit.

Vanguard reported a 1099-R Distribution for the IRA of 5500.00 which is what the IRS is using to get the taxes. I have a 5498 showing the conversion which it looks like I didn't file in the 2015 taxes. Is there anything else I could show?

Goodman60
Posts: 200
Joined: Mon Jun 03, 2013 8:53 pm

Re: Backdoor Roth Conversion and IRS trying to tax it

Post by Goodman60 » Sat Jun 17, 2017 10:03 am

Sounds like you are one of many getting nasty grams about 2015 backdoor Roth conversions. Read this thread:

viewtopic.php?f=2&t=221314

retiredjg
Posts: 29808
Joined: Thu Jan 10, 2008 12:56 pm

Re: Backdoor Roth Conversion and IRS trying to tax it

Post by retiredjg » Sat Jun 17, 2017 10:27 am

masrepus wrote:Anyone know what supporting information to use to support that there are no taxes on a backdoor Roth conversion? Am i right int that the conversion should not have triggered any taxes since it was 5500 into the IRA and then converted to Roth so there are no gains to tax?

The supporting information should have been a Form 8606 filed with that year's taxes. You mentioned other forms but didn't mention that one, so I suspect that might be your problem.

The non-deductible contribution should be documented on the front of the form 8606 and the Roth conversion reported on the back of the same form.

In 2015 I completed a conversion for my wife. We make too much to contribute directly to a Roth IRA and I have a large IRA so I put 5500.00 in an IRA for my wife and then immediately converted it to the ROTH, so there were no gains to tax. My wife doesn't work but does sell Living Oils so I guess that self-employed business is what triggered the audit.

The self employment has nothing to do with this that I can see.

masrepus
Posts: 6
Joined: Fri Apr 24, 2015 12:14 pm

Re: Backdoor Roth Conversion and IRS trying to tax it

Post by masrepus » Sat Jun 17, 2017 10:37 am

Goodman60 wrote:Sounds like you are one of many getting nasty grams about 2015 backdoor Roth conversions. Read this thread:

viewtopic.php?f=2&t=221314


Haha, I totally missed searching for CP2000... Thanks for the pointer.

masrepus
Posts: 6
Joined: Fri Apr 24, 2015 12:14 pm

Re: Backdoor Roth Conversion and IRS trying to tax it

Post by masrepus » Sat Jun 17, 2017 10:41 am

retiredjg wrote:
masrepus wrote:Anyone know what supporting information to use to support that there are no taxes on a backdoor Roth conversion? Am i right int that the conversion should not have triggered any taxes since it was 5500 into the IRA and then converted to Roth so there are no gains to tax?

The supporting information should have been a Form 8606 filed with that year's taxes. You mentioned other forms but didn't mention that one, so I suspect that might be your problem.

The non-deductible contribution should be documented on the front of the form 8606 and the Roth conversion reported on the back of the same form.

In 2015 I completed a conversion for my wife. We make too much to contribute directly to a Roth IRA and I have a large IRA so I put 5500.00 in an IRA for my wife and then immediately converted it to the ROTH, so there were no gains to tax. My wife doesn't work but does sell Living Oils so I guess that self-employed business is what triggered the audit.

The self employment has nothing to do with this that I can see.


Yes, somehow the form 8606 is not in there. I used TurboTax but looks like I totally just skipped including the 1099-r so I didn't even get to the 8606. Luckily I didn't do this in 2016 so shouldn't get a nasty gram for 2016.

cherijoh
Posts: 3869
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Backdoor Roth Conversion and IRS trying to tax it

Post by cherijoh » Sat Jun 17, 2017 11:00 am

masrepus wrote:
retiredjg wrote:
masrepus wrote:Anyone know what supporting information to use to support that there are no taxes on a backdoor Roth conversion? Am i right int that the conversion should not have triggered any taxes since it was 5500 into the IRA and then converted to Roth so there are no gains to tax?

The supporting information should have been a Form 8606 filed with that year's taxes. You mentioned other forms but didn't mention that one, so I suspect that might be your problem.

The non-deductible contribution should be documented on the front of the form 8606 and the Roth conversion reported on the back of the same form.

In 2015 I completed a conversion for my wife. We make too much to contribute directly to a Roth IRA and I have a large IRA so I put 5500.00 in an IRA for my wife and then immediately converted it to the ROTH, so there were no gains to tax. My wife doesn't work but does sell Living Oils so I guess that self-employed business is what triggered the audit.

The self employment has nothing to do with this that I can see.


Yes, somehow the form 8606 is not in there. I used TurboTax but looks like I totally just skipped including the 1099-r so I didn't even get to the 8606. Luckily I didn't do this in 2016 so shouldn't get a nasty gram for 2016.


That is definitely where you went wrong. If you get any 1099s (or W-2s) from the IRS you ALWAYS have to account for them on your 1040! The IRS does a good job of matching reported income to your tax form and that automatically triggers a letter for the IRS.

FYI - Form 8606 can be filed separately from your 1040, so had you made the same mistake for 2016, you could have corrected it before the IRS caught the mistake.

retiredjg
Posts: 29808
Joined: Thu Jan 10, 2008 12:56 pm

Re: Backdoor Roth Conversion and IRS trying to tax it

Post by retiredjg » Sat Jun 17, 2017 11:43 am

masrepus wrote:Yes, somehow the form 8606 is not in there. I used TurboTax but looks like I totally just skipped including the 1099-r so I didn't even get to the 8606. Luckily I didn't do this in 2016 so shouldn't get a nasty gram for 2016.

In that case, it seems this can be remedied by simply downloading the 2015 Form 8606 from the internet and filling it in by hand. Unless they asked for a 1040x, they will usually accept this form alone.

Goodman60
Posts: 200
Joined: Mon Jun 03, 2013 8:53 pm

Re: Backdoor Roth Conversion and IRS trying to tax it

Post by Goodman60 » Mon Jun 19, 2017 3:01 pm

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