Bottom line: Would you or would you not amend client's 2008 income tax return? Make your case briefly......
Facts:
1) In early 2008, client placed $5k into Roth IRA account for calendar year 2008.
2) In spring of 2009, client was made aware that the 2008 contributions were not allowable. Client requested a return of those specific funds, and received around $3k prior to 04/15/2009. The amount was calculated by the brokerage firm, and same was determined/paid based upon the overall loss in account value between January of 2008 and late March of 2009.
3) Client received a 2009 Form 1099-R which showed $3k in gross distributions. The distribution codes were P and J.
4) Client has made valid (maximum) Roth IRA contributions for both calendar years 2009 and 2010 and will continue to do so. The unusual circumstances of calendar year 2008 are likely not to be repeated. No other account withdrawals have occurred.
There will be no taxable event for 2008 because there is no net gain attributable to the original specific $5k payment. The only real change to the tax return would be an increase of $3k to line 15a of the Form 1040. Any amended Form 1040X would have zeroes top-to-bottom for "net change."
Would an explanatory letter to the IRS suffice, or alternatively just file away the information for any possible later inquiry by the IRS?
Thanks for all suggestions.
FE
Facts:
1) In early 2008, client placed $5k into Roth IRA account for calendar year 2008.
2) In spring of 2009, client was made aware that the 2008 contributions were not allowable. Client requested a return of those specific funds, and received around $3k prior to 04/15/2009. The amount was calculated by the brokerage firm, and same was determined/paid based upon the overall loss in account value between January of 2008 and late March of 2009.
3) Client received a 2009 Form 1099-R which showed $3k in gross distributions. The distribution codes were P and J.
4) Client has made valid (maximum) Roth IRA contributions for both calendar years 2009 and 2010 and will continue to do so. The unusual circumstances of calendar year 2008 are likely not to be repeated. No other account withdrawals have occurred.
There will be no taxable event for 2008 because there is no net gain attributable to the original specific $5k payment. The only real change to the tax return would be an increase of $3k to line 15a of the Form 1040. Any amended Form 1040X would have zeroes top-to-bottom for "net change."
Would an explanatory letter to the IRS suffice, or alternatively just file away the information for any possible later inquiry by the IRS?
Thanks for all suggestions.
FE
Comment