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I funded my traditional IRA for 1988 early (March 1998) but an unexpected capital gain in December made the contribution non-deductible. I have strongly resisted making non-deductible contributions to keep the accounting simpler later on when MRD's kick in, so I did not claim it as a deduction for TY 1998 and instructed my trustee (Vanguard) to remove the contribution (there were no earnings) from the IRA. This was done in March, 1999, prior to the 4-15-99 deadline. However when I got my TY 1999 1099-R from Vanguard, they showed a gross distribution of $2,000 in Box 1 and a taxable amount of $2,000 in Box 2a. Box 2b was checked as "Taxable Amount Not Determined". When I questioned them about this apparent contradiction, they said that was the way they report distributions (compliance method, or something like that) and would not issue a corrected 1099-R. They noted also that the distribution code in Box 7 showed this to be an excess contribution, and advised that I should not report the $2,000 as taxable income. I am a little uncertain about how the IRS will view the $2,000 in Box 2a as taxable. I would certainly appreciate any comments from you tax experts out there. Thanks.
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