Leaderboard

I am going through a similar scenario with a client. Discovered about a month ago that they have been contributing to a ROTH since forever. Fortunately it is just the past couple of years that have been excess. He was active duty military ... so was never close to the max until 2019 when he retired and had military retirement and civilian job that put him over. Apparently he never felt the need to tell me about the ROTH or provide any statements or 5498s... even though my worksheets ask these very questions... He was able to recharacterize 2020 and 2021. He withdrew the 2019 contribution. I had thought that he would have to withdraw contributions plus earnings for 2019. With some research, I found that once it is past the due date of the return, they just have to withdraw the excess contributions but not the earnings to cure the excess. the 6% penalty applies until the excess is withdrawn. for your client, the $92k distribution would likely cure the excess, but they would owe the 6% for each year since the excess contribution was made. Indeed! why has the IRS never caught this!

I guess I have been fortunate. I just had the first client who just received an IRS letter telling him that he had balance due because according to their records he received the first stimulus rebate while he claims he never received this rebate. I told him to review his checking account records again and gave the IRS phone number to call. Other than that I told him there was nothing I could do.

I guess i would rephrase my response a bit differently. The IRS is not in control of the majority of what has happened and is struggling to deal with the current situation. While it can be very frustrating, all we can do is explain it to our clients.

Telling clients to keep calling, or to be patient, depending on the urgency of their issue with the IRS. That I will work on it after 15 October. Very frustrated with the client calls/emails/texts during these last 3 or so months when I'm trying to prepare returns before 15 October. Very time-consuming at my busiest time of year! The IRS is broken. Why does the buck stop in my lap?!

FYI - The IRS has not processed all of the 1099s for 2019 yet. I received a notice that they don’t have any records of my withholding and now I owe a ton One of my client is going through the same, one of their contractors had withholding and they received a notice, called with a POA on behalf of my client and their contractor, IRS has no record of 1099s on file for 2019 and 2020, they were backlogged etc…. So be ready for calls from clients