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Old 11-15-2002, 12:42 AM   #1
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Question Received Form 8009 From IRS Regarding Recharacterization of Roth IRA

I originally made a post entitled ?Tax Refund for Recharacterizing Roth IRA?? that was responded by Mr. McCormally, in part, as follows:

?Assuming you recharacterized the entire amount you converted last year, you do not include a form 8606 with your amended return. (If you recharacterized only part of the 2001 conversion, you need a new 8606 showing the amount that was converted after taking the recharacterization into account.)

In either case, you need to include a statement with your return explaining that you made the recharacterization, and including the amount of the original conversion and the amount you recharacterized.?

In today?s mail, I received a Form 8009 from the IRS with the box entitled ?Please complete a Form 8606 to support the changes you made on line 1B of your amended return.?

I recharacterized my Roth IRA back to a Traditional IRA in September, 2002 (after having previously converted my Traditional IRA to a Roth IRA in September of 2001). I reported that transaction on my Form 1040X that I mailed to the IRS in October, 2002 with the following explanation in Part II: ?The changes are the result of recharacterizing all of my Roth IRAs to Traditional IRAs, which occurred on two separate dates...? and I went on to list the two dates in September, 2002 when the transactions occurred, and named the mutual fund family and brokerage account where my accounts are at.

Did I not explain myself clearly enough that I recharacterized the ENTIRE amount? Or, does the IRS simply want a copy of the Form 8606 that was sent in with my 1040 for year 2001? That would be strange, though, since the IRS has access to my original documents.

Did the IRS simply make a mistake, and thought that I did not recharacterize the entire amount of my Roth? Is there another reason why the IRS would require me to provide a Form 8606?

Thank you for your attention to this matter.
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Old 11-15-2002, 12:36 PM   #2
ersten
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Additional Input

I am the original poster.

I also thought of an another reason why the IRS might have sent the Form 8009: The amount that I recharacterized, which represents 100% of the Roth value, is not the amount that I included on line 1B of Form 1040X because I only put the taxable amount there (which is $22,000 less than the recharacterization amount -- this $22,000 representing the contribution of after-tax dollars, which is not subject to taxation). Could this be the source of confusion?

Put another way, if the IRS received information from my two trustees on the recharacterization, and the dollar amount that they report does not jive with what I reported, is that a problem? How do I resolve it?

Thank you,
Ersten
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Old 11-19-2002, 10:11 AM   #3
mccormally
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Sorry, but I don't have a satisfactory answer as to why the IRS wants the 8606. And, forgive the delay in getting back to you. I took your question to the IRS and, the best they could do is suggest that the instructions saying an 8606 is not necessary "could be clearer."

When you recharacterize the entire conversion, it's as though the original coversion never took place. So, I can't imagine what the IRS wants you to show on an 8606. Is it supposed to be blank? Is this the Twlight Zone?

Sorry to be asking quesitons rather than answering them. Your best bet is to call the IRS number on the top of your notice and ask them what they want.

On the bright side, although your refund is delayed until this is straightened out, at least the IRS has to pay you interest back to April 15. And, the current IRS rate of 6% beats the dickens out of money market funds.

--Kevin McCormally
editorial director
Kiplinger's magazine
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Old 11-19-2002, 11:46 AM   #4
ersten
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Mr. McCormally,

While awaiting a response from Kiplingers, I did consult with the IRS. One customer service rep said to photocopy page 3 of the Instructions for Form 8606, highlighting the sentence which states that this form is not required, and send that back as part of my response, along with a detailed statement explaining the history of the conversion and recharacterization. Another CSR said to also photocopy the original Form 8606 and Form 1040, and send that in, too. I will do all that.

I also chuckled at the thought of receiving 6% on that money, but frankly, I could use it now, since I am building an addition to my home, and my refinanced home mortgage only covers a little over half of that.

Thank you for your research and time,
Ersten
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