Background: Client in early 2008 placed $5k into Roth IRA for tax year 2008. In April of 2009, due to previously unexpected events, "those" funds were removed prior to 04/15 and a cash payment of $3k was received. (The difference is due to market losses in the account.) The Roth IRA remains active, and includes funds placed there both prior to and after 2008.
Client has received a 2009 Form 1099-R, likely due to the fact the money was actually distributed during that calendar year. Both lines 2a and 2b are blank. There are two distribution codes - P and J.
Question #1 - I assume the correct procedure is to put nothing related to this distribution on the 2009 income tax return. But will the IRS possibly be "looking for" the gross income, since the tax document is for 2009, or are they sophisticated enough to recognize the significance of Code P?
Question #2 - In theory an amended 2008 return is necessary. Since none of the Roth IRA distribution is taxable (client lost money while the "$5k" was present in the account) the only theoretical change would be to now include the amount shown in Box 1 of the 2009 Form 1099-R on line 15a of the 2008 Form 1040. Line 15b would remain zero. There is no change in tax liability. (It appears Form 8606 would also not be required.) Would you actually file an amended 2008 return for this "change" or perhaps just keep the documents on file if any questions should later arise?
Thanks for any suggestions!
FE
Client has received a 2009 Form 1099-R, likely due to the fact the money was actually distributed during that calendar year. Both lines 2a and 2b are blank. There are two distribution codes - P and J.
Question #1 - I assume the correct procedure is to put nothing related to this distribution on the 2009 income tax return. But will the IRS possibly be "looking for" the gross income, since the tax document is for 2009, or are they sophisticated enough to recognize the significance of Code P?
Question #2 - In theory an amended 2008 return is necessary. Since none of the Roth IRA distribution is taxable (client lost money while the "$5k" was present in the account) the only theoretical change would be to now include the amount shown in Box 1 of the 2009 Form 1099-R on line 15a of the 2008 Form 1040. Line 15b would remain zero. There is no change in tax liability. (It appears Form 8606 would also not be required.) Would you actually file an amended 2008 return for this "change" or perhaps just keep the documents on file if any questions should later arise?
Thanks for any suggestions!
FE