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In 1998 my wife and I each started a ROTH IRA in a mutual fund. We funded each of our accounts with $2000.00 each in 1998. In 1999, for financial reasons, we closed these accounts and received the full amount that we contributed plus some capital gains.

The IRS has deemed the entire withdrawal amount as an early distribution of a qualified retirement plan and has assessed taxes on the full amount plus the 10% early withdrawal penalty plus interest from 4/17/2000 to 5/23/2001.

How can this be? Payroll taxes were paid on the initial $2000.00 contributions to each account. Have they made a mistake since this was a ROTH account?

Any clarification that might help me with my understanding of my Appeal Rights will be genuinely appreciated.

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