How to report Roth 401k basis?

Technical topics regarding tax preparation.
#1
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Client took a $100k distribution from his company Roth 401k, completely qualified-age 70+, over 5 years, all employee contributions. 1099R was reported correctly. But client did not include the distribution on his return, since it was non-taxable in his mind. Two years later, he gets a bill from IRS for $40k, saying he underreported his income. Talking to IRS on his behalf, they said don't amend the return, just send in Form 8606 on its own, with a copy of the 1099R. This form specifically references IRAs, no mention of 401k. Plus, none of the information on the form seems relevant. I could enter the basis in the account on line 22, but that seems pointless.

Leaning towards just writing a letter and submitting it with the 1099R. Any better ideas out there?
 

#2
HowardS  
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Southern Pines, NC
But client did not include the distribution on his return, since it was non-taxable in his mind.

1099-R distribution code B?
Client messed up and could have avoided the notice.
Either letter and 1099-R as you suggested or respond with an amended return accompanying the letter. 8606 is wrong.
Retired, no salvage value.
 

#3
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29-Nov-2021 10:54am
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NC
Agree with Howard above.
Instructions for Form 8606, line 19 specify if the Roth Distributions are non-taxable, don't fill in this part but file on 1040 (paraphrased).
So I would prepare the amended 1040 to show 1099R distribution, marked as nontaxable, and attach copy of the 1099R as well to respond to the IRS notice.
 


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