IRS Deficiency Notice

[Guest mattmer]

Well, looks like I made a BIG mistake in 2000. I did a partial conversion from a Traditional IRA to a ROTH. I recieved the form 1099 that year for 33K. I ignored it since I rolled over the amount into the IRA. Now I've gotten a tax bill for $14k. Don't know what to do about it. I called the IRS and they said to get a copy of the 5493(?) and send it to them. That was all. From what I'm reading on this site, even though the amount I rolled over was after tax dollars, it still is a taxable event. I've come to the conclusion I may owe $14k. It was a stock rollover and not real dollars. Anyway, as it turns out, the Roth is worth about $14k. Ain't that crap! I'm going to get the rollover form and send to IRS, but, again, from what I'm reading hear and other places, there is nothing I can do except to pay the $14k. That's money I do not have! Wish I did. The rollover took place in 10/2000. If I could undo the rollover, it would be no problem, but tax on the amount that was already taxed really bugs me. I'm going to have to read a little closer next time.

Any ideas to get me out of this mess?

Thanks

Matt.

[BPickerCPA]

The IRS knows that you rolled over $33K and is assuming it is all taxable. However, if you had made non deductible IRA contributions to the traditional IRA, then some of the $33K is NOT taxable. So you need to compute the taxable amount on form 8606. The form you're looking for is a form 5498, but I don't know what good it will do you.

If you only made deductible IRA contributions, then it looks like you owe $14K. It's too late to undo the transaction.

[JAMES PATRICK]

If they told you to file a 5498 I wonder if the 1099R was coded as 1 in Box 7. To pay 14k on 33k would be about a tax rate of 42%.

So I wonder if the 14K includes the 10% penalty.

Did you take the stock and do the rollover or did you have the trustee do the transfer?

[Guest mattmer]

The 1099 has block 2b checked and 7 is a dist code 2 and ira/sep/simple is checked. I rolled it over through the trustee. I never received any funds myself. 33.8k includes 2.1k accuracy penalty and 1.3k interest. Looks like a sched A decrease of 1k too. It looks like I just can't get ahead. Sounds depressing but when you consider my (just as everyones) stock/ira portfolio took a hit from 600k (before 2000) to 95k(this week), I sure don't need this! I was trying to retire soon (I'm 53), but I guess I'll have to wait and see.

If I could just get a 'corporate loan, forgiven' I would be ok. While this is going to represent a hit I'm going to feel for a long time, I think the biggest problem is I really thought I knew what I was doing and this proves that it gets expensive when you only think and not know. The real kicker is that I was talking to one of the guys at work, and he was telling me that American Express (where I was in 2000) had a financial advisor available for employees who could have headed this off for me. DOH!

Life is tough and sometimes the bear eats you!

You'd think they'd treat RVN vets with more leniency (I'll try anything at this point). LOL.

Attitude is everything and getting a bad one sure ain't the thing to do at this point in life!!!

[mbozek]

Under IRS rules your time to recharacterize the transfer to the Roth Ira back to a dedecutible IRA expired on Oct 15, 2001. See IRS announcement 99-104. However IRS has granted extensions to taxpayers in special situations, e.g, the taxpayer recieved incorrect advice on the rollover (IRS ruling 200116058). IRS reg. 301.9100-3 provides for extension of the time for Rother IRA recharacterizaton under limited circumstances. I am not saying that you are eligible but that you should consult with a tax advisor whether such a ruling would be available and whether certain penalites can be waived. I dont think that ignorance of the obligation to pay the tax is grounds for a waiver but you should consult with a tax advisor.

[Guest mattmer]

Recvd ltr from IRS dtd 11/26. I do not owe anything. I supplied doc etc. in a imely manner. yippee kyoooo kyaaah