I guess the IRS doesn't understand a 1099R coded 1,8 with no taxable amount in Box 2a. There was no logical reason for them to deem the 4783 as taxable, even if you did not report the 1099R on your tax return. They should know from the 1099R itself that there is no tax liability. My guess is that the IRS matching program flagged the shortfall on line 4a, the non taxable line, and no one bothered to actually look at the 1099R itself before sending the letter.In Jan 2022, my wife and I both contributed the max $6k to our Roth IRA accounts. In December, it turns out we were above the MAGI limit to be eligible for Roth contributions. I am able to recharacterize and backdoor for myself. Easy.
My wife had a large Rollover IRA, however, and rather than fight with pro-rata stuff, we just decide to do a removal of excess contributions for the full $6000 (with the understanding that any earnings would be taxed). I used Vanguard's Removal of Excess Contributions portal to do so. Thought everything went off without a hitch.
Fast forward to today, I receive a letter from the IRS showing a $4,783 distribution that is taxable. I go check the 1099-R for that account from that year which shows the following:
Box 1 (Gross Distribution): $4,783
Box 2a (Taxable Amount): $0
Box 7 (Distribution Code): 8,J
Box 16 (State Distribution): $4,783
(everything else blank)
Go back to my bank records for that period, sure enough that $4,783 ended up in my checking account. The remaining $1,217 stayed in the Roth IRA settlement account. The IRS is now attempting to tax the $4,783.
So I've got a few questions:
1) Why was the $6k split up like that and only part of it distributed?
2) Why does the IRS see this $4,783 as taxable? Even if this was not a removal of excess contributions, should this not be viewed as removal of principal and thus not taxable?
3) What should be my next steps here? I am assuming contacting Vanguard, but with their run around, I would like to go in with a clear strategy and instruction on what they need to do to make any fixes.
I would not go to the trouble to amend your return but make a copy of the 1099R and send it to the IRS and indicate that the 4783 is obviously not taxable. You probably will not hear further.
Incidentally, the 1217 did not stay in any account. It was the loss on your contribution and did not exist when the removal was processed.
Statistics: Posted by Alan S. — Thu May 09, 2024 9:24 pm — Replies 2 — Views 194