hello everyone!i posted this at the "retirement investment" board and it was suggested that i post here as well. i would appreciate any comments regarding the following:in 1991 i bought an traditional ira that was invested in a poor performing instrument. the ira was sold to me by a young insurance agent. i was young and did not know that i could take deductions on my contributions. i made very little money and proceeded to contribute a small amount automatically on a monthly basis. since i made contributions in thisfashion, it is very easy for me to calculate my total contributions.however, since i did not know about the opportunity of deducting the contributions, i was essentially making unintentional NON-DEDUCTIBLE contributions over the years. furthermore, i knew NOTHING about form 8606 until last tax season! last tax season i realized that all non-deductible contributions needed to be reported on form 8606. as such, i filed 8606 for the first time last year disclosing my unintentional non-deductible contributions over the years. i also wrote a note to the irs explaining my mishap.this year, i converted this traditional ira to a roth.as such, i need to calculate my taxable conversion amount. i went to h&r block for assistance to make sure i did the right thing. to my surprise, the h&r block agent told me: "YOU CAN NOT TREAT YOUR UNINTENTIONAL NON-DEDUCTIBLE CONTRIBUTIONS AS BONA FIDE NON-DEDUCTIBLE CONTRIBUTIONS, BECAUSE YOU SHOULD HAVE TAKEN THE DEDUCTIONS OVER THE YEARS. THEREFORE, YOU CAN NOT USE YOUR UNINTENTIONAL NON-DEDUCTIBLE CONTRIBUTIONS AS YOUR COST BASIS. THEREFORE, YOU HAVE TO PAY TAXES ON THE ENTIRE DISTRIBUTION AMOUNT AS REFLECTED ON 1099-R".i disagreed with the h&r block agent's assertion as i thought that you had a choice as to whether you took the deduction if your modified agi did not preclude you from taking the deduction. i further feel that the h&r block agent was incorrect due to the following extract from pub 590 for year 2000 returns: "when you file, you can even designate otherwise deductible contributions as non-deductible contributions". (page 12 under subsection 'designating contributions as non-deductible' in the second paragraph)we are only talking about approximately $2,600 on the conversion. i calculated my basis (by adding all of my unintentional non-deductible contributions over the years) at approximatley $2,500. as such, it is my understanding that my taxable conversion amount is approximately $100 and this should be reflected in Part II of form 8606 (this was a TOTAL conversion).who is correct? the h&r block agent or me? if the h&r agent is correct, then i would be paying taxes on my contributions TWICE! i can't imagine the irs endorsing people paying taxes twice in such a scenario just because deductions were not taken on the contributions previously.once again, i would appreciate any comments, advice or suggestions. this is the only thing that is holding up my 2000 year returns. this is becoming very worrisome.sincerely,hitmand.
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