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Unfiled 8606 in 2000


Margaret CPA in OH
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A client cashed in his traditional IRA originally funded in 2001, probably for 2000. He did not file a Form 8606 at the time and did not deduct it ($2500) on his return for either 2000 or 2001. Is a position that it was not deducted then so should be treated as a nondeductible IRA contribution and therefore basis in 2007 and deducted from proceeds "more likely than not" to prevail? He has a statement from the broker showing that it was an IRA contribution and his tax returns filed do not have the deduction.

For what it's worth for discussion, the tax difference between fed and state is about $1,020.

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Does anyone out there know about this or at least have an opinion?

Uh oh, that was probably the wrong question. Many of you have opinions about many things, all interesting and erudite, no doubt. What about this particular topic?

Margaret-

I have had situations where multiple years worth of non-deductible contributions were not 8606'd (if you will) in prior years. I have included the sum total of them - after corroboration from the broker on the amount of contribution- and attached a note to that effect on the tax return for the year of reporting the withdrawals.

You were not dealt a perfect hand as far as prior years reporting but it certainly more likely than not that youy are on the correct path.

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Margaret, sorry for the late post. I too had the same situation in 2005. Client made non-ded IRA contribs in 2000, '02 & '03 & didn't tell me until 2005. I don't even know why it came up in discussion because she didn't contribute or withdraw from her IRAs in 2005 or 2006. Ordinarily the 8606 is only separately filed on its own if no 1040 is required. Penalty for filing late is $50/yr, so I told client to expect a bill for $150.

Client sent all 3 yrs' 8606s with a ltr of explanation to IRS that she never claimed any deductible contribs for these yrs, did not take any distribs from any IRAs (of any type) or make any ROTH conversions for any of these yrs. Also she stated that prior to the 2000 yr, she did not have "basis" in any IRAs. She also stated in the letter that she was not aware that this form was required.

Then form 8606 was filed properly with the 2005 return. 2 yrs later and my client never received any notice and was never assessed the penalty.

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