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Other than my rant, here is the lesson I offer. Check your Box 7 to ensure the correct coding of any rollover of an IRA. I never thought to look up the code to see there was a difference between "7" and "G".
- wonky, me. I always check for proper coding on my 1099s. Always. Total nutjob, obviously, but I am paranoid about IRS problems and paying taxes unnecessarily.
I recently had a similar experience when an IRA rollover was questioned by the IRS. I had withdrawn the money and redeposited - not a direct rollover. I sent IRS copies of my original withdrawal records and redeposits and even counted the days in big black letters on the statements so they couldn't miss it. I did receive a similar reply as you, but ignored it. Eventually, I got a final statement from them on a small tax due on another item. They accepted my documentation on the rollover without question. I expect they will do the same for you. Someone just has to look at it. It goes in a stack and they get to it eventually.
Last edited by Ariadne22; 04-22-2011 at 11:27 AM..
Who the heck came up with this formula and what were they smoking at the time ?????
Oh, I agree. First time I encountered that worksheet I got a terrible headache. Now I just add 50% of my SS to my income and do the 25-34K@50% and anything over 34K@85% when I'm doing tax planning. Seems to work out OK doing it that way.
- wonky, me. I always check for proper coding on my 1099s. Always. Total nutjob, obviously, but I am paranoid about IRS problems and paying taxes unnecessarily.
I recently had a similar experience when an IRA rollover was questioned by the IRS. I had withdrawn the money and redeposited - not a direct rollover. I sent IRS copies of my original withdrawal records and redeposits and even counted the days in big black letters on the statements so they couldn't miss it. I did receive a similar reply as you, but ignored it. Eventually, I got a final statement from them on a small tax due on another item. They accepted my documentation on the rollover without question. I expect they will do the same for you. Someone just has to look at it. It goes in a stack and they get to it eventually.
I am sending you a "rep" point just for being "wonky". Considering your extreme attention to detail, please make yourself available next year about tax time.
I am sending you a "rep" point just for being "wonky". Considering your extreme attention to detail, please make yourself available next year about tax time.
^^No, it was more than paperwork mistake. It was a violation of the withdrawal rules. The same money was withdrawn twice in a 12-month period. The fact that the rule is not known by the taxpayer does not negate the fact that the rule exists. IRAs have been in place for many decades and that particular withdrawal/loan rule has existed for almost as long as IRAs.
Frankly, had it been me, I would have done as someone upthread mentioned - not worry about it until the IRS questions it. There is a very high probability they would never have caught it. If they do, deal with it then. In my case, they did question a 2008 distribution reported on a 1099 because it was a large sum of money. Sent me a notice for $22,000 tax due. My documentation answered their questions. I've been doing withdrawal/loan/rollovers for decades. This is the first time they have ever asked me to prove the money was, in fact, rolled over. For that reason, I think somewhat smaller sums fall between the cracks. So, there is a very good chance this error would have never have been discovered.
^^No, it was more than paperwork mistake. It was a violation of the withdrawal rules. The same money was withdrawn twice in a 12-month period. The fact that the rule is not known by the taxpayer does not negate the fact that the rule exists. IRAs have been in place for many decades and that particular withdrawal/loan rule has existed for almost as long as IRAs.
Frankly, had it been me, I would have done as someone upthread mentioned - not worry about it until the IRS questions it. There is a very high probability they would never have caught it. If they do, deal with it then. In my case, they did question a 2008 distribution reported on a 1099 because it was a large sum of money. Sent me a notice for $22,000 tax due. My documentation answered their questions. I've been doing withdrawal/loan/rollovers for decades. This is the first time they have ever asked me to prove the money was, in fact, rolled over. For that reason, I think somewhat smaller sums fall between the cracks. So, there is a very good chance this error would have never have been discovered.
That was me. I agree... The risk (that the IRS does catch it) versus the reward (for the IRS not catching it) is worth taking the chance in my opinion. It's not like the taxpayer did not report earnings, or planned (schemed) to avoid paying taxes...which can be proved by the taxpayer ultimately rolling over the money. The absolute worse outcome is that the IRS does catch it and the taxpayer pays the taxes plus a small penalty. The best outcome is that the taxpayer pays the same as if the transaction was done correctly without mistake - meaning they pay nada, zilch, zippo...nothing.
PS - Blame it on ignorance...or blame it on TurboTax like Treasury Secretary Timothy Geithner did!
Frankly, had it been me, I would have done as someone upthread mentioned - not worry about it until the IRS questions it. There is a very high probability they would never have caught it. If they do, deal with it then. In my case, they did question a 2008 distribution reported on a 1099 because it was a large sum of money. Sent me a notice for $22,000 tax due. My documentation answered their questions. I've been doing withdrawal/loan/rollovers for decades. This is the first time they have ever asked me to prove the money was, in fact, rolled over. For that reason, I think somewhat smaller sums fall between the cracks. So, there is a very good chance this error would have never have been discovered.
Your advice runs counter to your own experience. This isn't, for example, unreported income that the IRS may or may not find; these are distributions/rollovers that would have been reported to the IRS on 1099s.
It is a simple matter for the computer to spit out the info.
Your advice runs counter to your own experience. This isn't, for example, unreported income that the IRS may or may not find; these are distributions/rollovers that would have been reported to the IRS on 1099s.
It is a simple matter for the computer to spit out the info.
True. But the IRS up to this point in my experience hasn't seemed to bother with smaller amounts. Mine was questioned because the sum involved was very large. It clearly raised a red flag for some type of an IRS review. OPs withdrawal wasn't that large, so it could very well have flown under the radar.
Playing devil's advocate, however, and for the sake of argument, in OPs case, a trigger for a review might have been two identical 1099s in identical amounts in the same year. In that case, the probability of an inquiry would be higher. But, as you said, the consequences wouldn't have been more than interest and possible penalty assessments, as it was not the intent of OP to underreport or defraud since she had done the rollover. Even though IRS disallowed one small item on which I was taxed and paid interest, I was not assessed a penalty which surprised me.
And, fwiw, my case related to a 2008 return on which there was inquiry from the IRS in Dec. 2010. So, it does take them a while - even on the larger amounts. I guess the prospect of potentially collecting $22K had to be pursued.
Last edited by Ariadne22; 04-23-2011 at 05:56 PM..
Rolling it directly from one financial institution to another is a cardinal rule preached over and over.
Guess using a CPA helps avoid these kinds of issues?
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- wonky, me. I always check for proper coding on my 1099s. Always. Total nutjob, obviously, but I am paranoid about IRS problems and paying taxes unnecessarily.
First time I encountered that worksheet I got a terrible headache. Now I just add 50% of my SS to my income and do the 25-34K@50% and anything over 34K@85% when I'm doing tax planning. Seems to work out OK doing it that way.
