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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Joined: Wed Feb 21, 2007 4:57 am

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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Joined: Wed Feb 21, 2007 4:57 am

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.

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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).

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