tgyoung[at]yahoo.com (Tom Young) writes:

- quote -

Since you asked, ignore the 1998 error, paper your bathroom
with the amended returns, and use the remaining basis in
your traditional IRAs in the 2003 conversion. You shouldn't
have to override anything in TT, but if you need to, do it.

Phil Marti
Topeka, KS

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tgyoung[at]yahoo.com (Tom Young) wrote:

- quote -

As a follow-up and clarification of my own post:

In 1998 I had a basis in my traditional IRAs. In 1998 I
converted most of them, but not all, to a Roth IRA, electing
to spread the income over 4 years. My concern was that
TurboTax, in its preparation of Form 8606, didn't properly
allocate the basis in my original traditional IRAs between
the traditional IRAs I didn't convert and the converted
IRAs, overstating the income I had to recognize for 1998 to
2001.

So, I downloaded the 1998 Form 8606 and the Instructions,
dug out the old 1099's and went to work. It turns out my
concern was well-founded as I determined that TurboTax *did*
overstate the income to be recognized by allocating too much
of the original basis to the unconverted traditonal IRAs.
As far as I can see this is a flat-out programing error as
TurboTax carries a number from Part II of the Form up to the
wrong line of Part I.

So, I've prepared 1040X's and 540X's for 2000 and 2001 and
will, hopefully, be getting some money back from the State
of California and the Fed's.

As it happens, I've converted the remaining traditional IRAs
to Roth IRAs this year. TurboTax will, of course, attempt
to use to use the basis it calculated back in 1998 in
determining the income to be recognized for the conversion.

What's the best way to handle this? Simply override
TurboTax to put in the correct figure I calculated by hand?
Prepare the return with the incorrect basis and then file an
amendment? Or just let TurboTax use the incorrect figure
and forget it? (I know that last suggestion is technically
wrong, but I also know that lots and lots of folks would do
just that.)

Tom Young

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- quote -

No. The 7 year statute is only for a "worthless security"
as defined in IRC 165(g) or a bad debt in IRC 166. The IRA
conversion is neither. However, if the IRA was solely
invested in those stocks which have gone under since, that's
the only way I see that there's even a chance - and that on
the basis of a FAILED conversion.

A Roth IRA has no basis, because it generally exists outside
of the tax system (at least as for as the recognition of
income from it is concerned).

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- quote -

Or alternately what if he had elected to spread the
conversion income over four years. Would his 1998 and 1999
returns be closed but the 2000 and 2001 be open to
correction?

--
Don EA in Upstate NY

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Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote:
- quote -

I can see I made a mis-statement in my original post.

In 1998 I converted all my traditional IRA's, *except for
one small one*, to Roth IRA's. If I had converted *all* my
traditional IRA's to Roth's I know my basis in the
traditional IRA's would have converted to the Roth as a
non-taxable event. However, since I didn't convert one of
my traditional IRA's, some small piece of the basis in my
traditional IRA's should have been "left behind."

It looks to me that way too much basis in the traditional
IRA's was left behind with the unconverted traditional IRA
and way too little basis was "transformed" into the Roth.
Accordingly, too much of the money converted to Roth's was
taxed in 1998, 1999, 2000, 2001 and 2002.

I'd really love to go back and amend each of these returns
in order to get things right. Any way of doing that? If
not, can I somehow amend the 3 open years?

TIA.

Tom Young.

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Tom Young wrote:

- quote -

The only way this has affected you is that the conversion in
1998 effected a slight over tax that you paid then on that
small basis, and as such, since 1998 is closed, too late to
file for a refund.

Everything in the account is still tax free, well , probalby
mostly anyway.

Christmas Cheer$,
Harlan Lunsford, EA n LA

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- quote -

The basis in your conventional IRA should have been used
when calculating the amount of tax that you paid on the
conversion back in 1998 (or spread over four years). There
is no such thing as "basis" in a Roth IRA - all qualified
withdrawals are totally non-taxable.

--
Don EA in Upstate NY

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tgyoung[at]yahoo.com (Tom Young) writes:

- quote -

There's no "basis" to carry over. The "basis" of a Roth
IRA is simply the sum of all contributions and conversions
made to it.

So if that conversion was all the money you've ever put
into a Roth IRA, its "basis" will be the amount of the
conversion. If you've also made annual contributions,
the "basis" will be the amount of the conversion plus
the sum of all the annual contributions.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"Tom Young" <tgyoung[at]yahoo.com> wrote:

- quote -

The statute of limitations for your situation would be three
years from when you filed (or 3 years from 4/15/99, if
later). Since that date has passed, there is nothing that
can be done.

Barry Picker, CPA/PFS, CFP

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- quote -

If you mean can you get money back from the IRS on the
error, I'm going to say no, the year is closed. However,
I'll plant the hint and ask my taxing buddies here what they
think...... If this is an investment type issue, the
statute runs 7 years. Do you think that would fly?

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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Back in 1998 I converted all my traditonal IRA's to Roth
IRA's. I had a small basis in the traditional IRA's. I'm
now fairly certain that my tax prep software - Turbo Tax -
didn't carry over the basis to the ROTH IRA's. Is there any
way to correct this (with the IRS) at this late date?

Thanks.

Tom Young

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