Tax questions

April 13, 2000

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions before the April 17 filing deadline.

In 1999, I took the first distribution from my IRA. Some of my contributions were nondeductible. Therefore, I computed the nontaxable portion of the distribution in the normal way and reported on my 1040 this year only the taxable portion. I did not submit Forms 8606 for those years in the mid-1980s when I made nondeduct- ible contributions. I do have good records to show which contributions were deductible and which were not. How will the IRS respond to this problem?

I am not certain how the IRS will respond. I believe you have two options:

1. File Forms 8606 for the years when you made nondeductible contributions, essentially giving the IRS the information that require you to prove your computation of the IRA distribution.

2. File one for only 1999, indicating your basis in all IRA accounts as of Dec. 31, 1998. Then compute the taxable amount of the 1999 distribution by completing the form.

Remember, all IRA accounts must be combined when computing the portion that is considered to be a return of your nondeductible contributions.

James K. Wilhelm Jr., CPA McLean, Koehler, Sparks & Hammond

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

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