IRS Notice CP2000 for Tax Year 2015 Backdoor Roth

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Saving$
Posts: 2518
Joined: Sat Nov 05, 2011 8:33 pm

IRS Notice CP2000 for Tax Year 2015 Backdoor Roth

Post by Saving$ »

I received an IRS Notice CP2000 for Tax Year 2015 Backdoor Roth. I have read about 4 other threads on BH that I could find on this issue, but my circumstances may differ.

I think the IRS gave me incorrect advice on how to respond to this.

After reviewing the other threads, I think (not sure, please see below) I did something wrong when answering the questions in Tax Act and as a result submitted a 1040 and 8606 with errors.

I told the IRS agent I think I filled out the forms incorrectly. After taking my name & SS and looking up my return, the agent stated my forms are correct, and the IRS software made an error. The agent instructed me to send the CP2000, check "I don't agree," attach a copy of my form 5498 from the IRA custodian (she did no specify which one - from the traditional IRA or the Roth IRA, or both?), and submit a statement that based on the 5498 I properly completed the 8606.

Based on the details below, is the above correct? If so, I will do it. If not, what should I do? Follow the IRS's direction or something else?

Transaction: Backdoor Roth, completed entirely in 2015. Interest earned from initial contribution to conversion less than a dime, so after rounding conversion amount = initial contribution.
Form 1040:
15a: $0 associated with backdoor Roth; entire amt on 15a is from an inherited Annuity
15b: $0
16a: $0 associated with backdoor Roth; entire amt on 16a is from an inherited Annuity
* 16a is mistake #1: I think I should have entered the backdoor Roth amount here. Difference in amounts is only a few dollars.
16b: $0

Form 8606:
Row 1: Backdoor Roth amt
Row 2: $0 = blank
Row 3: Backdoor Roth amt
Rows 4 through 9: blank
* I think this is mistake #2; if the conversion out of Trad IRA to Roth counts as a distribution, then the answer to the question in row 3 is yes, and I should not have skipped to row 14.
Row 10: X (Tax software did this; not sure why)
Rows 11 through 13: blank
Row 14: Backdoor Roth amt
Row 15: $0
Rows after 16 (Page II of 8606): Not filed by my tax software, as apparently all cells were blank.
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: IRS Notice CP2000 for Tax Year 2015 Backdoor Roth

Post by Chip »

The agent gave you bad information. As you suspected, your forms are incorrect.

1. If your only IRA distributions were the backdoor Roth, 1040 Line 15a should be 5,500, 15b zero. Nothing from the annuity goes on these lines (annuity distributions would be on 1040 Line 16a & 16b unless the IRA box was checked on the 1099-R).

2. Lines 16-18 on Form 8606 should be filled in. 16 and 17 should be 5,500, 18 should be zero.

Was this thread one of the ones you read? Do any of the issues in that thread apply to you?

Do you still have access to TaxAct so that you can correct your forms in the software?

Edit: Corrected oversight on tax software
Last edited by Chip on Fri Jul 07, 2017 8:11 am, edited 1 time in total.
fishboat
Posts: 508
Joined: Tue Oct 14, 2014 12:15 pm

Re: IRS Notice CP2000 for Tax Year 2015 Backdoor Roth

Post by fishboat »

One of the four threads you read may be

viewtopic.php?f=2&t=219225&p=3383040&hi ... e#p3383040

if not, you may find some insight there.

I received a letter from the IRS a couple days ago stating they received my response and need to review it. No additional info was required and they'd get back to me within 60 days.
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 3:49 pm
Location: Charlotte NC

Re: IRS Notice CP2000 for Tax Year 2015 Backdoor Roth

Post by cherijoh »

Chip wrote:The agent gave you bad information. As you suspected, your forms are incorrect.

1. If your only IRA distributions were the backdoor Roth, 1040 Line 15a should be 5,500, 15b zero. Nothing from the annuity goes on these lines (annuity distributions would be on 1040 Line 16a & 16b unless the IRA box was checked on the 1099-R).

2. Lines 16-18 on Form 8606 should be filled in. 16 and 17 should be 5,500, 18 should be zero.

Was this thread one of the ones you read? Do any of the issues in that thread apply to you?

What tax software did you use? Do you still have access to it so that you can correct your forms in the software?
I agree with Chip. If you get a 1099R, it has to be reported somewhere on your 1040 in column a - even if the taxable amount (reported on part b) is zero).

The IRS is going to match W-2s and 1099's of all variations (e.g., 1099-INT, 1099-DIV, 1099-R, 1099-G, 1099-MISC, etc.) to your 1040 (and associated schedules) and if the amount doesn't show up somewhere (or the amounts don't match) you will eventually get a letter from them.

I realize that people don't like to read instructions, but come on guys - it states right on the front of the 1099-R that this amount must be reported. This doesn't mean slipping over the question or entering zero. :oops: I don't use Tax Act, but I'm sure it also explicitly tells you to enter the amount from Box 1 on your 1099R. OP are you skipping the interview process in your tax software and just filling out the forms yourself? That might be your mistake. Otherwise, you seriously need to slow down and read the instructions as you work your way through the tax software.

EDITED to ADD: OP did you do a Backdoor Roth for 2016? If so, now is the time to check your 2016 taxes to make sure that you didn't make the same mistake.
Topic Author
Saving$
Posts: 2518
Joined: Sat Nov 05, 2011 8:33 pm

Re: IRS Notice CP2000 for Tax Year 2015 Backdoor Roth

Post by Saving$ »

Thank you very much for the responses. Since it seems to be confirmed I made an error on both the 1040 and the 8606, what should my next course of action be?
1. Follow the instructions from the IRS agent, who seems to think my forms don't have an error?
2. Call the IRS back, talk to another agent and try to get different instructions?
3. Ignore the instructions from the IRS agent I've spoken with and do something different, such as:
a. Respond to the CP2000 with "I don't agree" and a new 1040, new 8606 and copies of both 5498's?
b. Respond to the CP2000 with "I don't agree" and only a new 8606 since that seems to be the issue they have?
c. Respond stating I'm filing an amended return, with new 1040 and 8606?
d. Other?? (what?)

In answer to the questions:
- I use Tax Act download version, and yes I still have access to it. Interestingly, it wants to download an update that was pushed AFTER the filing deadline for 2015 taxes...
- I follow the Tax Act interview questions (rather than filling out the forms). I have no idea what I did wrong when I did this over a year ago. I'm clear that I got the 1099-R's mixed up when I entered the amounts for 15a and 16a (they are from the same company). I don't skip over questions, and intend and try very hard to do it all correct. I'm clear I made an inadvertent mistake there. Maybe I was just tired when I did it and tired when I followed up to check it before filing, maybe I got the forms mixed up, maybe the questions were not clear, maybe I'm not as sharp as I used to be. All are possibilities. I actually think what happened is the 1099-R for the annuity arrived long after all the other forms, via snail mail and afterI had finished the balance of the return and was only waiting for that form. I had to go back into the TaxAct interview process, and I recall it was a bit confusing, and I suspect I inadvertently changed something on the backdoor Roth.
Right now I'm focusing on how to respond to the CP2000 and correct the mistake (I'm fairly confident I don't actually owe any taxes, I just have to correct the reporting).
- I thought (could be wrong) that TY 2015 was when I started following The Finance Buff's step by step directions for entering the backdoor Roth. Maybe I did not start that until TY 2016. Maybe I did and I messed it up when I entered the annuity 1099-R.
- I checked my 2016 return (also did a Backdoor Roth on that) and it seems to be correct.
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: IRS Notice CP2000 for Tax Year 2015 Backdoor Roth

Post by Chip »

Saving$ wrote:Thank you very much for the responses. Since it seems to be confirmed I made an error on both the 1040 and the 8606, what should my next course of action be?
1. Follow the instructions from the IRS agent, who seems to think my forms don't have an error?
2. Call the IRS back, talk to another agent and try to get different instructions?
3. Ignore the instructions from the IRS agent I've spoken with and do something different, such as:
a. Respond to the CP2000 with "I don't agree" and a new 1040, new 8606 and copies of both 5498's?
b. Respond to the CP2000 with "I don't agree" and only a new 8606 since that seems to be the issue they have?
c. Respond stating I'm filing an amended return, with new 1040 and 8606?
d. Other?? (what?)
I would do (b) with a cover letter stating that you filled out the 8606 incorrectly, you've attached a corrected 8606, and that there is no change in tax. Make sure you reference the CP2000 AUR control number on your cover letter. Expect it to take at least a month to get a closing notice from the IRS.
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