IRA distribution with wrong cost basis: how to correct?

Technical topics regarding tax preparation.
#1
Posts:
716
Joined:
15-Jun-2019 8:24am
Location:
Virginia
I have a client who made distribution from traditional IRA with balance 20,000 and costs basis 10,000.

In 2018, he distributed 1000 reporting 0 taxable income and 9000 remaining basis.

In 2019, he distributed another 2000 reporting 0 taxable income and 7000 remaining basis.

He should have computed the cost basis in the distribution using percentage.

My options are:

a) Amend 2018 and 2019.
b) File accounting change (is this possible? I did not see it as an automatic method).
c) Start to file correctly from 2020, the life time taxable income will come out the same.

If amended return is the answer, what should I do if the wrong method has been used
for the past 10 years?
Please consider visiting this post where my question at the end has not been answered yet:
viewtopic.php?f=8&t=12065, thanks!
 

#2
Posts:
716
Joined:
15-Jun-2019 8:24am
Location:
Virginia
I hope to get more attention for this problem, which is common enough that everyone can meet. It is similar to missed or incorrect depreciation in that (a) the cost basis and tax paid is incorrect; (b) one year affects next year; and (c) the life time income does not change.

If this happens for past 10 years and if we only correct the open years, then the cost basis is still incorrect. It is a burden to both taxpayers and IRS to amend all ten years, so it should be an accounting change issue, but I did not find theoretical nor practical information.

Thanks for reading this post.
Please consider visiting this post where my question at the end has not been answered yet:
viewtopic.php?f=8&t=12065, thanks!
 


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