I have a client who did not keep up with telling their preparer years back on what was contributed to their IRA. Now they have had to take a distribution and it has all had tax paid on it already. Can an 8606 be used for this or something else? Or will she just have to pay tax on it since there is nothing showing on the 8606? She does have proof of the deposits.
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8606
If your client has proof of all IRA deposits and has all prior year tax returns showing that no deduction was taken you can recreate the basis and complete an 8606 showing the taxable and non-taxable portion of the distribution. I am not sure if you have to go back and file an 8606 for every prior year though.I would put a favorite quote in here, but it would get me banned from the board. -
You need more facts to proceed
I'm not sure I understand your comment.Originally posted by Bjay View Post
There are only two possibilities:
1 - Client put funds into a (traditional?) IRA account in the years involved, and deducted those amounts (if allowable) from the income taxes for the years involved. For those, 2012 withdrawals would be fully taxable. There would be no Form 8606 issues.
or
2 - Client put allowable funds into a (traditional?) IRA account in the years involved, and was not able to deduct those contributions from his AGI. A Form 8606 should have been prepared for each such year...I think there are even $$ penalties for not doing so. If that is the case, some portion of the 2012 withdrawals will likely NOT be taxable, but again you have to work through a current Form 8606.
You may be stuck with how far back you could amend any returns? That homework burden is on you.
I think I would tell the client to have a loooooong talk with the former preparer. SOMEONE dropped the ball, big time!
Also, since there is obviously a bit of "client confusion" at play, you might wish to find out if you might be dealing with 401k and/or Roth IRA issues instead.
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