Yet another CP2000 for Roth IRA conversion thread

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Viking65
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Yet another CP2000 for Roth IRA conversion thread

Post by Viking65 » Mon Apr 16, 2018 1:25 pm

Today I received the dreaded CP2000 letter from the IRS, stating that DW and I owe tax on $13000 of non-deductible IRA contributions entirely converted to our Roths. This is for tax year 2016.
Unlike the other earlier threads on the subject I have read, it appears to me that both the 1040 and 8606 forms are filled out correctly. On the 1040, Line 15a is 13000 and 15b is 0. For form 8606, I followed the Finance Buff's wonderful instructions for doing this in TT (thanks TFB!), and lines 6-12 (often a trouble spot) are filled in properly, line 13 is 6500 for both myself and wife, and part II is also filled, culminating in line 18 being 0.
FYI, the 1099-R for both myself and DW shows 6500 in box 1 and the same in 2a, 2b says taxable amounts not determined and yes to total account distribution. Box 7 code is 2, and the IRA/SEP/SIMPLE box is checked.
So if our 8606's are in fact filled correctly, exactly what can I tell the IRS that they don't already have in their possession to clarify the matter?
I have done this exactly the same way for the past many years, and this is the first time this has been flagged. Any idea, why now?

Chip
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Chip » Mon Apr 16, 2018 1:45 pm

It does sound like you did everything correctly. It's unfortunate, but sometimes the IRS just screws up.

Just to clarify, are Lines 16 & 17 of each of the 8606s $6,500?

Viking65
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Viking65 » Mon Apr 16, 2018 1:57 pm

Chip wrote:
Mon Apr 16, 2018 1:45 pm
It does sound like you did everything correctly. It's unfortunate, but sometimes the IRS just screws up.

Just to clarify, are Lines 16 & 17 of each of the 8606s $6,500?
Yes, that is correct.
So if I have in fact done everything correctly, how to I convince the IRS that I have done it correctly, aside from having done it correctly?

Chip
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Chip » Mon Apr 16, 2018 3:26 pm

Viking65 wrote:
Mon Apr 16, 2018 1:57 pm
So if I have in fact done everything correctly, how to I convince the IRS that I have done it correctly, aside from having done it correctly?
What I have done is write a response to the CP2000 that says something to the effect of "We do not agree with any of the IRS-proposed changes to our 2016 Form 1040. We believe our return is correct as it was originally filed."

Then just tell them what you did. Go into detail about non-deductible tIRA contributions made on X date and documented on Forms 8606, Line 1. Then Roth conversions reported on Forms 1099-R, with a Box 7,Code 2, taxable amount not determined. Those 1099-Rs reported on both Line 15a of Form 1040 and Line 8 of Form 8606. And how after you subtract this from that, etc., it results in a taxable amount of zero on Line 18 of Forms 8606, which carry to Line 15b of Form 1040. You should attach copies of documents showing your IRA contributions and 2016 year end balances (Forms 5498). You could copy the 1099-Rs as well.

The CP2000 is spit out by a machine. A human will read your response and almost certainly figure out you did it right.

Viking65
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Viking65 » Tue Apr 17, 2018 3:22 am

This is very helpful. Thanks a lot!

retiredjg
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by retiredjg » Tue Apr 17, 2018 9:44 am

I all looks right to me too. Please let us know what you find out.

Katietsu
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Katietsu » Tue Apr 17, 2018 10:17 am

Did you file electronically or by paper and mail? If by mail, your form 8606 probably was not entered as part of your tax return.

Viking65
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Viking65 » Tue Apr 17, 2018 1:09 pm

Katietsu wrote:
Tue Apr 17, 2018 10:17 am
Did you file electronically or by paper and mail? If by mail, your form 8606 probably was not entered as part of your tax return.
I submitted the return by mail. I checked my copy of the mailed return and it definitely had both 8606s included. It would certainly explain the issue it if the IRS didn't enter the 8606s as part of the return. But I can't imagine why on earth that they would not. The 1040 clearly shows an IRA distribution, so the 8606 would be an essential part of the return in determining whether it was taxable or not.

Katietsu
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Katietsu » Tue Apr 17, 2018 3:58 pm

Viking65 wrote:
Tue Apr 17, 2018 1:09 pm
Katietsu wrote:
Tue Apr 17, 2018 10:17 am
Did you file electronically or by paper and mail? If by mail, your form 8606 probably was not entered as part of your tax return.
I submitted the return by mail. I checked my copy of the mailed return and it definitely had both 8606s included. It would certainly explain the issue it if the IRS didn't enter the 8606s as part of the return. But I can't imagine why on earth that they would not.
Your response seems to indicate that you have an image of an IRS employee knowledgeable in the tax code opening your return and reviewing it.

If you saw what happens to your paper return, you would not be surprised that it could have been missed. I do not know what a modern IRS service center looks like. Maybe someone else on this forum would be able to enlighten us.

I have two data points. About a couple of decades ago, your return might have ended up in a large warehouse, stacked up in shopping carts. Temporary data entry workers would have been slogging away trying to read everyone's writing, while meeting production quotas. This may still be the process for all I know since the paper entries still have W-2 forms attached, etc.

Today, my state scans all tax returns and uses OCR software to convert your hand entry into an efile. This is why they do not want W-2's and why they do put alignment marks on the tax forms. One person opens the envelope and feeds a new return into the scanner every 5 seconds.

Chip
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Chip » Tue Apr 17, 2018 4:03 pm

Viking65 wrote:
Tue Apr 17, 2018 1:09 pm
I submitted the return by mail. I checked my copy of the mailed return and it definitely had both 8606s included. It would certainly explain the issue it if the IRS didn't enter the 8606s as part of the return. But I can't imagine why on earth that they would not.
I'm sure pages of returns get lost on a semi-regular basis before/during the scanning process. This is actually one VERY good reason to file electronically.

In addition to what I mentioned above, I would also include copies of the 8606s you filed with your return with your response to the CP2000.

Leesbro63
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Leesbro63 » Tue Apr 17, 2018 4:07 pm

I had something very similar happen a few years ago. I just returned the CP2000, by certified mail, with a note that I believed "everything was filed properly as per the attached". And attached a copy of Forms 1040 and 8606 with the pertinent areas circled in red Sharpie. I got a "get out of jail free" letter about 60 days later (after getting the "we are still processing" letter 30 days later).

orangejelloh
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by orangejelloh » Sun May 06, 2018 1:53 pm

I received a similar CP2000 as the OP this past week for my 2016 tax return, saying that I owe tax on the Roth conversion I did as part of a backdoor Roth.

I filed electronically, so I am not sure what the reason for receiving CP2000 was. Turbotax filled out Form 8606 correctly as far as I can tell, including lines 1-5 and 13-15 of Part I and 16-18 of Part II. Lines 6-12 are left blank but as previously discussed in other threads, this is in line with the directions in Publication 590B.

So, I can't blame my letter on filing by mail. I am not sure what triggered form CP2000, but have written a letter to IRS that describes why I believe my tax return is correct as submitted. Would be interested to hear if others who have filed electronically have also received CP2000.

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JamesSFO
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by JamesSFO » Sun May 06, 2018 2:00 pm

Same problem for 2016 and Roth IRA, my CPA called IRS and they are working to fix... IRS error

Viking65
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Viking65 » Mon May 07, 2018 3:15 am

JamesSFO wrote:
Sun May 06, 2018 2:00 pm
Same problem for 2016 and Roth IRA, my CPA called IRS and they are working to fix... IRS error
OP here. Seems like a pattern emerging indicating a systematic bug at the IRS in matching the institutional-provided information with the 1040's, regardless of paper or efiled returns.
I wrote a letter back to the IRS contesting all their changes, and included the 1099-R's, 8606's, and 5498's as support. I will let you know when I receive a response.
In the meantime, I expect that we may see many more "me too" responses.

4strings
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by 4strings » Mon May 07, 2018 12:19 pm

#metoo

CPA sent a response to IRS with 1099-R and Brokerage Statements as well as a written description of what occurred. Should be a non-event and an IRS software glitch.

gailygaily
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by gailygaily » Thu Jun 21, 2018 7:49 pm

#Metoo

File electronically through TT. 8606 was correctly filled in. Got the CP2000 today for tax year 2016.

Have anyone got the response yet and what we need to submit other than an explanation letter?
orangejelloh wrote:
Sun May 06, 2018 1:53 pm
I received a similar CP2000 as the OP this past week for my 2016 tax return, saying that I owe tax on the Roth conversion I did as part of a backdoor Roth.

I filed electronically, so I am not sure what the reason for receiving CP2000 was. Turbotax filled out Form 8606 correctly as far as I can tell, including lines 1-5 and 13-15 of Part I and 16-18 of Part II. Lines 6-12 are left blank but as previously discussed in other threads, this is in line with the directions in Publication 590B.

So, I can't blame my letter on filing by mail. I am not sure what triggered form CP2000, but have written a letter to IRS that describes why I believe my tax return is correct as submitted. Would be interested to hear if others who have filed electronically have also received CP2000.

nolesrule
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by nolesrule » Thu Jun 21, 2018 8:08 pm

I got my CP2000 today. Mine was a double whammy. Roth conversion and also a Traditional IRA rolled into a 401k.

Already compiled my response with the 8606, Roth IRA 5498 and a copy of the 401k statement showing the amounts received matching the amounts on the IRA 1099.

I'm going on vacation soon and didn't want to waste time on the phone so I'm mailing it tomorrow.

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JamesSFO
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by JamesSFO » Fri Jun 22, 2018 12:00 am

I got an acknowledgment of my CPA's filing in response to the CP2000, but no decision. Annoying and slow.

47Percent
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by 47Percent » Fri Jun 22, 2018 10:17 am

Same situation here.

Received a cp2000 for an additional tax+penalty of $14,500 for tax year 2016!

All of it related to a ROTH recharacterization. All details were filled in correctly with e-filing through TT. The only issue could have been that 5498 was horribly delayed because the recharacterization was done in May, after the April 15 filing deadline - but still well before the extension deadline.

Anyway, in the response I attached three sets of documentation.
1) The complete sets of 1099-R and 5498 showing the flow of money.
2) Transactional record from the brokerage of all transfers betwn. TIRA and ROTH
3) Copy of my original faxed request to the broker for the recharacterization.

Waiting to see what happens.

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Hayden
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Hayden » Fri Jun 22, 2018 10:21 am

I'm watching this thread because I'm planning to do a Roth conversion for the first time this year. It sounds like you all believe that TT handles this correctly, and the error is on the IRS side?

47Percent
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by 47Percent » Fri Jun 22, 2018 10:38 am

Hayden wrote:
Fri Jun 22, 2018 10:21 am
I'm watching this thread because I'm planning to do a Roth conversion for the first time this year. It sounds like you all believe that TT handles this correctly, and the error is on the IRS side?
Conversion per se is not a problem if the entire amount of conversion is untaxed money -- i.e. all the conversion is taxable. From 2018 on there is no recharacterization to worry about. So only other issue is if your conversion has a basis, or if it is from after-tax non-deductible IRA.

Otherwise, it is just like any other tax issue. Keep the paperwork straight, be clear in your own mind that you are correct, and explain. Should work out.

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Hayden
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Hayden » Fri Jun 22, 2018 12:56 pm

47Percent wrote:
Fri Jun 22, 2018 10:38 am
Hayden wrote:
Fri Jun 22, 2018 10:21 am
I'm watching this thread because I'm planning to do a Roth conversion for the first time this year. It sounds like you all believe that TT handles this correctly, and the error is on the IRS side?
Conversion per se is not a problem if the entire amount of conversion is untaxed money -- i.e. all the conversion is taxable. From 2018 on there is no recharacterization to worry about. So only other issue is if your conversion has a basis, or if it is from after-tax non-deductible IRA.

Otherwise, it is just like any other tax issue. Keep the paperwork straight, be clear in your own mind that you are correct, and explain. Should work out.

My conversion does involve non-deductible IRA contributions. Does TT handle that? Are there minefields I need to be aware of?

retiredjg
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by retiredjg » Fri Jun 22, 2018 1:28 pm

Hayden wrote:
Fri Jun 22, 2018 12:56 pm
My conversion does involve non-deductible IRA contributions. Does TT handle that? Are there minefields I need to be aware of?
Yes, TT does handle conversions with non-deductible contributions, but it must be done a certain way. Are you at all familiar with that? Do you have your non-deductible IRA contributions documented on Form 8606?

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Hayden
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Re: Yet another CP2000 for Roth IRA conversion thread

Post by Hayden » Fri Jun 22, 2018 2:17 pm

retiredjg wrote:
Fri Jun 22, 2018 1:28 pm
Hayden wrote:
Fri Jun 22, 2018 12:56 pm
My conversion does involve non-deductible IRA contributions. Does TT handle that? Are there minefields I need to be aware of?
Yes, TT does handle conversions with non-deductible contributions, but it must be done a certain way. Are you at all familiar with that? Do you have your non-deductible IRA contributions documented on Form 8606?
I have submitted Form 8606 every year, so yes, the non-deductible IRA contributions are properly documented. This will be my first year doing conversions, so I am not familiar with the paperwork for conversions. Also, I plan to make an after-tax contribution for 2018 in early 2019. So that will further complicate matters.

i don't want to hijack this thread. Could you please advise me on the thread I've started about this:

viewtopic.php?f=2&t=252250

Thanks!

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