Refusing to Amend 1099-R

[geekgirldany]

Re prior post if you would like to read:

http://forum.thetaxbook.com/showthread.php?27845-Excess-SEP-Contribution-Problems&highlight=code

IRS seem to not understand the situation and wanted a Form 8606 which did not apply in this situation. I told the client to ask the bank for a amended 1099-R to show the correct Code 8.
Well, I never did hear again from the client until today. They tried to handle it on their own. The Bank said they would not amend the 1099-R because it had been 3 years and it was against the law to amend after that time.

Have any of you heard of this?

First it has been 2 years from the date of the tax year and second if the form is incorrect do they not have the obligation to amend?

[kathyc2]

Re prior post if you would like to read:

http://forum.thetaxbook.com/showthread.php?27845-Excess-SEP-Contribution-Problems&highlight=code

IRS seem to not understand the situation and wanted a Form 8606 which did not apply in this situation. I told the client to ask the bank for a amended 1099-R to show the correct Code 8.
Well, I never did hear again from the client until today. They tried to handle it on their own. The Bank said they would not amend the 1099-R because it had been 3 years and it was against the law to amend after that time.

Have any of you heard of this?

First it has been 2 years from the date of the tax year and second if the form is incorrect do they not have the obligation to amend?

Reading the previous posts, I would have doubts that client filed the paperwork correctly so that bank knew it was an excess contribution. It may not be technically correct but it seems that a 8606 would correct the tax situation.

[geekgirldany]

Hmm... I will have to review Form 8606 again. If I remember correctly (this was back in September) it seems as though the Form 8606 did not apply to the situation and I could not figure out how to make it work.

[kathyc2]

Hmm... I will have to review Form 8606 again. If I remember correctly (this was back in September) it seems as though the Form 8606 did not apply to the situation and I could not figure out how to make it work.

The 8606 would only work if he didn't have money in Traditional IRA's. Other wise it would need to be prorated.

From previous posts in 2013 he put 18K in SEP but was only allowed to take 4K due to income limitation. So, at that point he had 14K of non-deductible money in SEP, which would roughly correspond to basis IRA. The 14K would need to be reduced by amount deducted on 2014 return. If the 2014 deduction on tax return was again 4K, he would have "basis" IRA of 10K and would be taxed on the difference of 2015 1099R and basis. Like I said, not technically correct, but the numbers should work out to the same as if 1099R was reported as return of excess contribution.

[taxea]

Make it easy. Report the 1099 as is then adjust it for correction. Attach a statement of explanation.

[geekgirldany]

Thank you all for replying. I wasn't able to respond yesterday.

Clients want to handle it on their own and I don't know why. I will provide them with the Form 8606.
Kathy what you said makes total sense. Wish I would have posted on it sooner.

So, I need to enter the 10K Form 8606 Line 1 and then the Distributions on Line 7. This will show about 4K which they will be taxed on.

[kathyc2]

Thank you all for replying. I wasn't able to respond yesterday.

Clients want to handle it on their own and I don't know why. I will provide them with the Form 8606.
Kathy what you said makes total sense. Wish I would have posted on it sooner.

So, I need to enter the 10K Form 8606 Line 1 and then the Distributions on Line 7. This will show about 4K which they will be taxed on.

Well.... I may have inadvertently led you down the wrong path. When I googled "do sep iras count for 8606" it returned "For purposes of Form 8606, a traditional IRA is an individual retirement account or an individual retirement annuity other than a SEP, SIMPLE, or Roth IRA. Contributions".

However, actually looking at the form, line 6 wants you to include the value of SEPs which will lead to a proration problem, which will continue to all future years. Sorry....

Since they want to handle it on their own, your best bet may be to wish them good luck and be done with them.

[geekgirldany]

Thanks Kathy. I remember researching Form 8606 back in Aug/Sept and that was my understanding as well. What you said made sense so I thought that would be the answer.
I do appreciate your help. There is a reason the IRS is asking for a Form 8606 and I believe they just don't understand what happened.
It appears on the paperwork to remove the excess contributions the bank moved it into a Non-IRA account which could cause other problems.

Client already got the 90 day letter. I am sure I could clear it up but they want to handle it for some reason.