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Learning, Sharing, and Teaching => Investor Alley => Topic started by: WillPen on June 03, 2015, 09:19:35 AM

Title: Help with IRA Recharacterization and Form 8606
Post by: WillPen on June 03, 2015, 09:19:35 AM
In July of 2014, I recharacterized the 2013 Traditional IRA contributions for me and my wife to Roth IRA contributions. It turns out we made too much to claim any deductions. Vangaurd reports form 5498 to the IRS every May, so the transaction I mentioned above were just sent over.

My understanding is that I need to file an amended return for 2013 (Form 1040x) and include form 8606. After reading the instructions for filling out form 8606, I read this. The highlighted portions describe my situation.

You made a contribution to a traditional IRA and later recharacterized part or all of it in a trustee-to-trustee transfer to a Roth IRA. If you recharacterized only part of the contribution, report the nondeductible traditional IRA portion of the remaining contribution, if any, on Form 8606, Part I. If you recharacterized the entire contribution, do not report the contribution on Form 8606. In either case, attach a statement to your return explaining the recharacterization. If the recharacterization occurred in 2014, include the amount transferred from the traditional IRA on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. If the recharacterization occurred in 2015, report the amount transferred only in the attached statement, and not on your 2014 or 2015 tax return.

Here are my questions
1) What makes up a valid "Statement"? Is a comment in the section III of the 1040 (Explantion of Changes) sufficient?
2) I don't think I even need to include an 8606. Am I correct in that understanding?
3) As far as the 1040x Incode & Deductions section, Tax Liability section, etc. Nothing has changed from the original submission. Do I even need to bother filling them out?

Frankly, I'm wondering if I even need to file an amendment at all.

Any help is greatly appreciated.
Title: Re: Help with IRA Recharacterization and Form 8606
Post by: dandarc on June 03, 2015, 09:26:15 AM
Did you file for an extension in 2014 for 2013's taxes?  Because if not, your recharacterization is invalid regardless - deadline is your tax filing deadline - April 15th, absent an extension.

As far as the specifics of an amended return, I'll have to defer to the real accountants on the board.
Title: Re: Help with IRA Recharacterization and Form 8606
Post by: dandarc on June 03, 2015, 09:33:35 AM
And of course, I was wrong about that - ( indicates you have until October 15th, if you file your taxes on time.
Title: Re: Help with IRA Recharacterization and Form 8606
Post by: Cathy on June 03, 2015, 10:48:35 AM
And of course, I was wrong about that - ( indicates you have until October 15th, if you file your taxes on time.

You weren't exactly wrong. Recharacterisations, which are called "adjustments" in the statute, are authorised by 26 USC 408A(d)(6), and the recharacterisation must be effected "on or before the due date for any taxable year". The term "due date" is defined in 26 USC 408A(d)(7) as the date prescribed by law for filing the taxpayer's return, including extensions. The recharacterisation provision (paragraph (d)(6)) opens with "[e]xcept as provided by the Secretary", but this applies to the authority to recharacterise, not to the due date. In other words, this language authorises the Secretary to deny any requested recharacterisation, but if he is going to allow one, he can't waive the requirements for it.

However, 26 USC 6081(a) authorises the Secretary to grant a "reasonable" extension of time for filing a return. A reasonable extension is defined to be at most 6 months except for an individual who is "abroad".

The general rule in statutory interpretation is that provisions that authorise extensions of time can be invoked either before or after the underlying time period has elapsed. One interesting non-tax example of that principle is found in Alberta (Information and Privacy Commissioner) v. Alberta Teachers' Association, 2011 SCC 61 (, [2011] 3 SCR 654, which concerned a provision that required an administrative official (the Information and Privacy Commissioner of Alberta) to deal with all complaints within 90 days of receipt, unless he extended the time for responding. In the case, he took over 22 months to deal with a complaint and then when one of the parties to the complaint alleged that he lost jurisdiction, he purported to retroactively extend the time period. The Supreme Court of Canada upheld the extension.

Presumably based on the retroactive time extension authority, the Secretary has generously promulgated a regulation providing that all statutory deadlines for elections that are based on the time for filing the return including extensions, are to be treated as expiring at the end of the 6 month extension period, rather than the actual due date for the return, so long as the taxpayer complies with some fairly minimal technical requirements, including filing the return itself on time: 26 CFR 301.9100-2(b). That generous regulation is reflected in the information contained in the linked publication.