- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Backdoor Roth IRA contributions- IRS step transaction treatment
Posted on 9/9/15 at 9:16 am
Posted on 9/9/15 at 9:16 am
Are those of you who are doing backdoor Roth IRA contributions year over year concerned about the potential IRS treatment described in this article below? Thanks, trying to figure out if this is a real concern or if it's just smoke.
LINK /
LINK /
This post was edited on 9/9/15 at 9:31 am
3
Posted on 9/9/15 at 10:35 am to GeneralLee
Yes, the aggregate rule is a real issue.
Posted on 9/9/15 at 12:11 pm to Shepherd88
I should specify, not concerned about the aggregation rule as I have no traditional IRA's with taxable income to be concerned about. The scenario I'm concerned about is with the "step transaction" treatment. For example, where I put after tax funds into a traditional IRA, convert it to a Roth, then at some point down the road the IRS says that those two transactions were effectively one that's intent is to skirt the law and assesses a 6% per year penalty on excess contribution to a roth IRA.
Posted on 9/9/15 at 1:48 pm to GeneralLee
Very low chance of that ever happening. It is only applicable in tax court and can't just be assessed by the IRS. They would have to catch it during an audit (low chance of audit, lower chance they find it) and then decide it was worth applying the rule to by taking you to tax court.
Essentially the only reason I would see it being an issue is if you run a high risk of audit and are doing other things that would result in fines and penalties. Then they are likely to lump this in as well.
Essentially the only reason I would see it being an issue is if you run a high risk of audit and are doing other things that would result in fines and penalties. Then they are likely to lump this in as well.
Posted on 9/9/15 at 4:07 pm to GeneralLee
The IRS des not have the resources to investigate Roth conversions in isolation of other causes for examinations. The return on their investment of agent time is not sufficient to justify the effort. So you would have to be examined for some other reason, and the investigation of the Roth conversion might come up.
If you want to avoid the IRS applying the step transaction doctrine you can make the nondeductible IRA contributions over a period of several years and accumulate a substantial account balance. When you are ready to convert go see a financial advisor who you have never done business with and ask for his advice. Get him to put his recommendations in writing. Make the conversion after getting the written advice about the conversion. This might remove the IRS presumption that you planned to do the conversion when you were making the contributions which would be a key element in the step transaction doctrine being applied.
If you want to avoid the IRS applying the step transaction doctrine you can make the nondeductible IRA contributions over a period of several years and accumulate a substantial account balance. When you are ready to convert go see a financial advisor who you have never done business with and ask for his advice. Get him to put his recommendations in writing. Make the conversion after getting the written advice about the conversion. This might remove the IRS presumption that you planned to do the conversion when you were making the contributions which would be a key element in the step transaction doctrine being applied.
Posted on 9/9/15 at 4:10 pm to GeneralLee
The step doctrine is thrown at cases when people are trying to break things up into little pieces, because the little pieces are by themselves allowed, whereas if it was all put together, it would not be. It's also used if there is willful intent to evade laws by using a particular process.
I don't think that applies here. Anyone can make a nondeductible contribution to an IRA. And anyone can make a Roth Conversion. In fact, it is Congress that took deliberate action to allow anyone to be able to do a Roth Conversion. This wasn't always the case. Prior to 2010, there was an income limitation on a Roth Conversion.
To me, this necessity for a contribution followed by conversion is more due to Congress being lazy and never aligning the Roth Contribution rules, more than anything else.
Now, would some jack-leg IRS agent try to be fancy and deny it on audit? Possibly. But I'd love to take on that agent.
The aggregation rules are more of a concern, but even then, it would have to be identified on audit, and it's a relatively small amount of revenue potential.
With the IRS as understaffed as it is, it's relying on matching programs to handle the bulk of small dollar issues, and using the agents on bigger fish. This isn't something that would be picked up in a matching case, and it's not something that would be assigned as a single audit issue. If you were hit with a full blown research exam, you could have an slight issue. And honestly, this is an issue in a research audit I'd be glad to give the agent if they feel they need a victory, to keep them away from other areas!!
I don't think that applies here. Anyone can make a nondeductible contribution to an IRA. And anyone can make a Roth Conversion. In fact, it is Congress that took deliberate action to allow anyone to be able to do a Roth Conversion. This wasn't always the case. Prior to 2010, there was an income limitation on a Roth Conversion.
To me, this necessity for a contribution followed by conversion is more due to Congress being lazy and never aligning the Roth Contribution rules, more than anything else.
Now, would some jack-leg IRS agent try to be fancy and deny it on audit? Possibly. But I'd love to take on that agent.
The aggregation rules are more of a concern, but even then, it would have to be identified on audit, and it's a relatively small amount of revenue potential.
With the IRS as understaffed as it is, it's relying on matching programs to handle the bulk of small dollar issues, and using the agents on bigger fish. This isn't something that would be picked up in a matching case, and it's not something that would be assigned as a single audit issue. If you were hit with a full blown research exam, you could have an slight issue. And honestly, this is an issue in a research audit I'd be glad to give the agent if they feel they need a victory, to keep them away from other areas!!
Page 1 of 1
Popular
Back to top
Follow TigerDroppings for LSU Football News