Yet another CP2000 for Roth IRA conversion thread

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

This is very helpful. Thanks a lot!

retiredjg · 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 · 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 · 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 · 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 · 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 · 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 · 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.

JamesSFO · 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 · 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 · 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 · 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 · 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.

JamesSFO · 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 · 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.

Hayden · 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 · 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.

Hayden · 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 · 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?

Hayden · 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!

scorp_pccorp · Post by **scorp_pccorp** » Tue Jul 17, 2018 4:18 pm

I am joining the CP2000 for 2016 crowd. I received the form in the mail last night. I will follow this thread for advice and follow-ups.

47Percent · Post by **47Percent** » Tue Jul 17, 2018 4:28 pm

scorp_pccorp wrote: ↑
Tue Jul 17, 2018 4:18 pm
I am joining the CP2000 for 2016 crowd. I received the form in the mail last night. I will follow this thread for advice and follow-ups.

Welcome to the club.

Just a word of caution. Do not expect an immediate or even timely response from IRS to your response to CP2000.

It's been 6 weeks since my response and I finally got impatient and tried contacting IRS. After holding for what seemed to be a long time, I was told that a letter is in the mail and should arrive in a week or so. The content of the letter? I was told, is to let me know that they need more time to process my response!!

JamesSFO · Post by **JamesSFO** » Mon Jul 23, 2018 6:50 pm

They closed my CP2000 saying I owe nothing, so computer glitch basically. Glad to be done with it.

47Percent · Post by **47Percent** » Mon Jul 23, 2018 8:24 pm

JamesSFO wrote: ↑
Mon Jul 23, 2018 6:50 pm
They closed my CP2000 saying I owe nothing, so computer glitch basically. Glad to be done with it.

Good to know.. and I am hoping for the same result.

I have a CP2000 issue, as well as an amended return which seems to be stuck in the system for the past 16 weeks. Fortunately CP2000 is regarding a non-issue; so there is no intersection. But I was quite surprised to find out that one arm of the IRS doesn't have any details about the other. When I got them on the call for one issue, if I mentioned the other issue they would act as if I dialed the wrong number.

47Percent · Post by **47Percent** » Thu Aug 23, 2018 2:44 pm

47Percent wrote: ↑
Mon Jul 23, 2018 8:24 pm

JamesSFO wrote: ↑
Mon Jul 23, 2018 6:50 pm
They closed my CP2000 saying I owe nothing, so computer glitch basically. Glad to be done with it.
Good to know.. and I am hoping for the same result.

I have a CP2000 issue, as well as an amended return which seems to be stuck in the system for the past 16 weeks. Fortunately CP2000 is regarding a non-issue; so there is no intersection. But I was quite surprised to find out that one arm of the IRS doesn't have any details about the other. When I got them on the call for one issue, if I mentioned the other issue they would act as if I dialed the wrong number.

My closure came today. All is well. $0.00 owed.. revised down from proposed amount of $14,850

"Thank you for your response to the notice we sent you about your 2016 taxes. We're pleased to tell you that the information you provided resolved the tax issue in question and that our inquiry is now closed"

FYI: I didn't use a CPA or anyone's help. I just sent them the relevant 1099R, 5948, and other information with an explanation.

JamesSFO · Post by **JamesSFO** » Thu Aug 23, 2018 10:03 pm

Nicely done

brennok · Post by **brennok** » Thu Aug 23, 2018 11:48 pm

Add me as another.

Re characterized in March 2017.

JJP · Post by **JJP** » Tue Aug 28, 2018 11:55 pm

[Thread merged into here, see below. --admin LadyGeek]

I properly did a Backdoor Roth for tax years 2016 and 2017 with Vanguard. I just recently received a letter from the IRS proposing that the $5500 was taxable income. They are claiming this is because they received my 1099-R from Vanguard which it shows a total distribution of the funds "Code 02" which means "Early distribution, exception applies." I called Vanguard and they said I should send my 5498 for my Roth IRA. This 5498 shows a "Roth IRA Conversion Amount" equal to $5500. The IRS also notes I should send the same 5498, and I will do so. Note: I did not deduct the $5500 for either years so this is not a taxable event.

My questions are now as follows:

1. Vanguard said their Traditional IRA form accurately shows a 02 code. Why is this so? They couldn't explain it other than "it's correct, send the 5498." I'm thinking this should be a Code G, Direct Rollover of a distribution to a qualified plan.
2. Vanguard's 5498 is distributed in May...do I have to file an extension EVERY year on my taxes so I can submit a 5498 with my return?
3. How should I file my taxes from now on to prevent this from happening?
4. Is there anything else I should know in addition to the questions above?

Thanks!

JamesSFO · Post by **JamesSFO** » Wed Aug 29, 2018 12:37 am

See the thread on other 2016 notices for correct back door roths it's a computer glitch at the IRS: viewtopic.php?f=2&t=247277

FiveK · Post by **FiveK** » Wed Aug 29, 2018 12:40 am

JamesSFO's note may cover your situation. Just in case...what did you put on form 8606 for those years?

JJP · Post by **JJP** » Wed Aug 29, 2018 10:11 am

JamesSFO wrote: ↑
Wed Aug 29, 2018 12:37 am
See the thread on other 2016 notices for correct back door roths it's a computer glitch at the IRS: viewtopic.php?f=2&t=247277

Perfect. Thanks for the info! This looks like it's the case. $5500 was indicated on 8606 also.

Post by **LadyGeek** » Wed Aug 29, 2018 3:37 pm

I merged JJP's thread into the on-going discussion. It looks like several members have jumped in with their own situation (not a problem, just mentioning it).

nolesrule · Post by **nolesrule** » Tue Sep 04, 2018 2:40 pm

nolesrule wrote: ↑
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.

I got my resolution notice for my CP2000 today. The information provided answered their questions. Amount due: $0.00.

retiredjg · Post by **retiredjg** » Tue Sep 04, 2018 4:06 pm

Great. Thanks for the update.

Saving$ · Post by **Saving$** » Thu Sep 20, 2018 4:18 am

I also received the CP2000 for my backdoor Roth.
Replied with copies of tax forms and note that I filed correctly and nothing was due.
Received the "we are processing your response" letter.

Now received a letter that states:
"Thank you for your reply dated () to our notice about proposed changes to some of the items on your tax return. Please disregard the CP2000 Notice we sent you. The notice was sent in error. You do not owe the proposed additional tax. We apologize for any inconvenience this may have caused."

Pretty straightforward. Never thought I would see the day they admitted to an error.

Viking65 · Post by **Viking65** » Fri Sep 21, 2018 3:59 am

OP here. I just wanted to circle back and close the loop. I called the IRS, and finally got to a human in their AUR department, and he confirmed that my 2016 return is now accepted as originally filed and that no additional taxes are due.
While he stopped short of saying that it was an IRS matching glitch related to Roth conversions, it seems clear from the multitude of experiences on this board, that this is the case. Curiously, he said that they sent a "case closed" letter at the end of May, but I never received one.
So if you have received the CP2000 for 2016 and are confident that you filled the transactions correctly on your return, you likely have nothing to worry about.
Thanks to all who contributed; it was very useful to know that I wasn't in this boat alone. Special thanks to Chip who provided with a very effective template on how to pitch my response to the notice.

naclt · Post by **naclt** » Fri Sep 21, 2018 1:18 pm

Just received my CP2000 letter for the 2016 tax year. I was worried I would get left out.

Chip · Post by **Chip** » Fri Sep 21, 2018 2:01 pm

Viking65 wrote: ↑
Fri Sep 21, 2018 3:59 am
OP here. I just wanted to circle back and close the loop. I called the IRS, and finally got to a human in their AUR department, and he confirmed that my 2016 return is now accepted as originally filed and that no additional taxes are due.

I'm very glad to hear that it's resolved. Thanks for closing the loop.

scorp_pccorp · Post by **scorp_pccorp** » Mon Oct 01, 2018 10:32 am

47Percent wrote: ↑
Tue Jul 17, 2018 4:28 pm

scorp_pccorp wrote: ↑
Tue Jul 17, 2018 4:18 pm
I am joining the CP2000 for 2016 crowd. I received the form in the mail last night. I will follow this thread for advice and follow-ups.
Welcome to the club.

Just a word of caution. Do not expect an immediate or even timely response from IRS to your response to CP2000.

It's been 6 weeks since my response and I finally got impatient and tried contacting IRS. After holding for what seemed to be a long time, I was told that a letter is in the mail and should arrive in a week or so. The content of the letter? I was told, is to let me know that they need more time to process my response!!

Update to my CP2000. I received a letter last Friday saying I owe $0

My CP2000 was different from others in that I had mistakenly made an IRA contribution at Vanguard with a view to do a backdoor Roth, but after realizing the pro-rata issue, withdrawn the contribution and the gain before the tax date and paid taxes on the gain. Vanguard had sent out a 1099-R for the distribution which triggered the CP2000. I basically sent IRS a fax with a letter explaining this and about 8 weeks later, it is all clear.

brennok · Post by **brennok** » Mon Oct 01, 2018 8:37 pm

This is when I hate the USPS Informed Delivery. Saturday the 29th I received a scan showing an IRS letter coming, but not in the mail Saturday even though the rest of the scans were. It didn't come today either so hoping it comes tomorrow with good news.