Recharacterization window closed for good on 1998 conversions?

[Guest Billy Clyde]

Client converted Traditional IRA to Roth just after getting married in late 1998. New spouse's income threw them over the $100K threshold. Client received notice of this from IRS 12/99 but failed to recharacterize prior to year end. What counsel would you provide and is there any chance of forthcoming legislation that would re-extend the period to recharacterize and/or address the discrimination against married couples with respect to the conversion limit on a retroactive basis?

[BPickerCPA]

In previous cases, the IRS extended the deadline prior to the expiration of the then existing deadline. So my guess is that 20 days after the deadline, no further extension is forthcoming from the IRS. As for Congress, the less about those bozos the better.

It looks like your client is up the creek, pure and simple. Assuming he's under 59½, he's looking at paying 100% of the tax in '98, a 10% early withdrawal penalty, a 12% excess contribution penalty (2 years at 6% each year), and he no longer has a retirement account.

Only Congress can come up with a law written in such a way as to so penalize a taxpayer.

------------------

Barry Picker, CPA/PFS, CFP

New York, NY

[Bruce Steiner]

You might want to apply for permission to make a late reconversion under Treas. Reg. § 1.9000.

You might have a better case if the income shown on the return were under $100,000, but was increased to over $100,000 on audit. In this case, presumably he knew when he filed his return (which was due before 12/31/99 even if it were on extension, assuming he was in the United States) that his income was over $100,000.

------------------

Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL