IRA owner permitted to recharacterize ’98 conversion in 2001-2002

[Appleby]

A couple, whose income exceeded the $100,000 AGI limit, received permission from the IRS to recharacterize their 1998 conversion. The deadline to recharacterize is 6-months after the date the letter was issued.

[Guest reg_h2b]

Appleby-

Interesting.

Bottom line: is the recharacterization still a 1998 recharacterization even though it occurs way after the 12/31/1999 deadline? If so, where in the ruling is this stated?

Said another way, when the custodian files the distribution and contribution paperwork with the IRS are they coded "as if" they had occured in a timely manner?

I've got a similiar PLR outstanding where this is relevant.

Thanks

[Appleby]

Good question.

This is only one of several PLR’s issued with the similar outcome (for 1998 conversions).

The IRS’ instructions to IRA custodians are to report recharacterizations for either current year or prior year. I.e.

Use Code N for an IRA contribution that was made for 2001 and was recharacterized in 2001.

Use Code R for an IRA contribution that was made for 2000 and was recharacterized in 2001. As a custodian, I would report the transaction as a prior year (one that meets the time requirement).

It would then be up to the client to include an explanation to the IRS when the 1040 is filed.

Any thoughts…

[Guest reg_h2b]

Appleby-

The feedback that we got from the IRS PLR writer is that the effective date of the recharacterization will be when our election was made: in our case 12/31/99.

In our case, the custodian never made the actual asset transfer back to the traditional by or on 12/31/99.

When we get the PLR I'll post the results.

BTW, the final act in recharacterizing the IRA is reporting it on the owner's tax return. Is the deadline for this reporting requirement the deadline for amending that year's tax return. So the 1998 conversion that was recharacterized in 1999, the reporting deadline would be 4/1/2002, correct? I infered this from IRS Ann. 99-104 (1998 recharacterization). Is the deadline always the amended return due date for the reporting requirment?

Reg

[Appleby]

Another PLR- similar ruling