Hi everyone - This forum has been so helpful to me I thought I would throw out this issue I am trying to work through. It's a fun one LOL.
So my daughter inherited a Roth IRA from a close family friend (Charlotte) who passed in November 2013. It was $78K and I transferred it to an UTMA for her at Merrill Lynch and finally to a 529. My accountant didn't see a reason to file a tax return on behalf of my daughter at the time because the friend was in her 80's - and I guess he figured the chances of the account being opened for less than 5 years was small. Well, fast forward to 2016 and the CA Tax Board is calling about why we didn't file a tax return (they received information from Merrill Lynch about the distribution). I wrote the tax board (on the advice from my accountant) a letter and provided the 1099-R that showed that the a distribution code of "T" in Box 7 which indicated it was a Roth. But they are saying I have to prove the account was open for at least 5 years. And that the growth on the account is taxable if it wasn't open 5 years. Well, as it turns out - Charlotte opened the account with Merrill in 2011 - she opened it with a Roth she had at TD Ameritrade. I have the account number for TD Ameritrade - but they won't provide me any further information because I am not the executor on the estate. I don't think I'll be able to get the executor to reach out to TD Ameritrade on my behalf (don't know them, probably not worth their time I think). (Update: I just actually sent an email to the Executor asking them for help - what do I have to lose, right?)
I called the Tax Board representative (J.P) and told him the situation. He responded to me that in order to resolve the case, I have to either provide the 1099-R to him (which I did and I guess he forgot?) or prove the account was open for 5 years. I guess here are my questions:
1. Is either Merrill Lynch or TD Ameritrade obligated to provide the proof of the taxability of the account when it was distributed?
2. Any idea on how my accountant (or the state for that matter) would be able to figure out the taxable growth if I don't have the original balance from 5 years ago?
I'm not trying to get wrapped around the axle on this - but it's been important to me to not just say "Yes, let's write a check to the Tax Board." I may end up doing that BUT, my principles are telling me not to just lie down. I want to do what's fair but not more.
If you've read all the way through this and have any advice (thank you):) Happy Thursday.
