Ira

[DTS]

Hope someone can help at this late stage!

I deducted a traditional IRA on client's return last year. A friend told him not to do this and put it into a Roth, which he did without calling me first.

Aside from amending the '05 return and removing the IRA, what can be done at this late date to correct this and what is the timeline for doing so? TTB states a situation similar to this, but I'm not sure this is the same situation I have.

Please tell me what to tell him, aside from the obvious!

Thank you,

Dennis

[BP.]

TTB 13-15. Rechar's must be done w/in 6 mos of due date of timely filed return, and reported on an amended return, so too late for that it looks like. I'm thinking I'd amend, remove IRA deduction, and pay tax due on Roth contrib.

[sea-tax]

Hope someone can help at this late stage!

I deducted a traditional IRA on client's return last year. A friend told him not to do this and put it into a Roth, which he did without calling me first.

Aside from amending the '05 return and removing the IRA, what can be done at this late date to correct this and what is the timeline for doing so? TTB states a situation similar to this, but I'm not sure this is the same situation I have.

Please tell me what to tell him, aside from the obvious!

Thank you,

Dennis

Dennis if you can and the client wants to you may be able to have the client call the broker and explain that the client made a mistake and the amount was suposed to be coded as a traditional IRA not a roth.
Basically the client has to admit that he screwed up and usually the brokerage company will recode the contribution as a 2005 traditional instead of a roth.
That is of course if that is what the client wants, if not then I think you have to amend his return and have him pay the additional taxes.
I have successfully done this before with various mutual fund companies. Often times my clients have both Roth and Trad that I manage and when I tell them to make the payment to one they inadvertantly make the payment to the other. Good luck

[DTS]

Ok!

BP and Sea-tax,

Thank you. I will call the client this minute and tell him to get to the bank tomorrow and do what you suggested.

Again, I thank you for the helpful suggestions.

Dennis

[erchess]

Here goes

The only clear responsibility you you have to him is to inform him that in legal jargon he has a deficiency on his 05 tax return because he claimed a contribution to a traditional IRA that he did not make. You have to tell him how much money he has to pay if he wants to square things now, and you have to explain the rules regarding interest and penalty that will pile up and that he could one day be required to pay. Don't overlook any change the IRA situation may make in his State and in any Local tax returns. One way to calculate everything except the interest and penalty would be to prepare the amended returns. Once you have calculated the change in the return you can look up the interest and penalty in TTB. Don't forget to consider the penalty for Fraud, which might or might not apply. When you have all this information together, call him. If he wants the amended returns, then prepare them and collect your fee. If he does not want the amended returns do not send them to him but write him a letter. "As we discussed on the phone on date.......bla bla bla" and tell him everything he needs to know. If you have a lawyer on retainer send a copy to that individual. If you do not have a lawyer put a copy in a safe deposit box at your bank. Keep a hard copy and a computer copy at your office. If your office is separate from your home, it wouldn't be a bad idea to keep a copy at home as long as you have a lockbox there. If for any reason something happens to one of your three copies, generate a replacement. You may some day need to prove in court that you told him about the problem soon after learning of it yourself. Now in this scenario I am assuming that you believe the fault for the situation is his and that you need to be paid if you are to prepare his amended returns.

If you did not adequately stress to him the fact that he needed to open a traditional IRA because his return said he would make one, I think you should prepare the amended returns for free and see about helping him collect on any applicable policy that may pay some or all of the bill for him. (My software comes with a feature called Safety Net. An electronically filed return by me has a fee built in that buys a policy. Under the policy, if I make a mistake the taxpayer will be reimbursed the first $3K of tax, penalty, and interest that he has to pay. I don't understand the distinction, but I can call what I have a policy but I cannot call it insurance.)

If you have any doubt about which of these scenarios applies, do not say anything here that might incriminate you, and seek the advice of a malpractice attorney.

[DTS]

erchess

I will not have any liability here. I did inform him what to do and why.

I called him 10 minutes ago and told him what sea-tax suggested and the client then told me that after our discussion last year, he went to the bank and expressed to them he wanted to open a "traditional IRA so he could save a little on his tax return". They told him, "Dude, you don't want to do that. Put it in a Roth".

And here we are!

Dennis

PS: He will be at the bank first thing tomorrow.

[sea-tax]

I will not have any liability here. I did inform him what to do and why.

I called him 10 minutes ago and told him what sea-tax suggested and the client then told me that after our discussion last year, he went to the bank and expressed to them he wanted to open a "traditional IRA so he could save a little on his tax return". They told him, "Dude, you don't want to do that. Put it in a Roth".

And here we are!

Dennis

PS: He will be at the bank first thing tomorrow.

Dennis , Good luck with the bank. As I suspected there must have been some miscommunication between your client and the bank or custodian. This should be a simple fix .
Don't forget to have them transfer not only the original investment but the gains as well.

[DTS]

Sea-tax...

I did tell him about the earnings, as well. I will call him a bit later and remind him of this, once again.

Dennis