How do we fix our tax issue?

Question

My wife and I filed with HR Block last year. The preparer told us that if my wife, who makes about 35K contributed to a ROTH, we would get a bigger tax return. We forgot to contribute in the required timeframe. Now the $4K contribution we made to her ROTH shows as a 2007 contribution instead of 2006. BUT, I was told by another tax profesional that a ROTH is nondeductible so Its not a big deal and I just need to adjust my records. But Im pretty sure that claiming that $4K contribution gave us a bigger tax credit on our 06 return. We got about 600 back insted of owing 2-3 hundred without the contribution. What should we do???
Oh yeah, The IRS has NOT contacted us about this. I just know we made the contribution late and imagine its only a matter of time before they catch on.

Answer 1

File a 1040-X with payment due as soon as possible because the clock is ticking on interest. You could try appealing any penalties because of incompetent tax advice but I have no idea if that will do any good.

Maybe Block is liable for the error. It's pretty elementary that deductions to a Roth IRA are never deductible, so it's a gross error. Since you just promised to do something after the return was completed, they could say you misunderstood the instructions, or that they're not liable for your mistakes after the return was completed. As a volunteer tax preparer I'm always nervous when people promise to make big IRA contributions before April 15 so they can get the write-off. But we were told to trust people on this so I go along.

Answer 2

It's not just a matter of being late, although that would be a problem. A contribution to a ROTH isn't deductible, so if that changed your tax owed, the preparer screwed it up and you need to amend your 2006 return to correct it.

When you go to H&R Block, you really take pot luck. Some of their preparers are very competent, others are not. Apparently you got one who wasn't. If you went to a year-round office, go back and ask for the manager - they should prepare the amended return at no additional charge.

If this was a Retirement Savings Contributions Credit and not a deduction of an IRA, you and she would only be eligible to take that on a joint return if your AGI was under $50K - you don't say what you make, but if she makes $35k and you also work, you are probably over the limit for that. If you filed as married filing separately, then she is over the limit herself. Even if you had NO income yourself, it's unlikely the credit would have made $800 difference in your taxes.

Answer 3

You had better go back and look at your return. If you did take an adjustment for a traditional IRA contribution and didn't actually contribute to a traditional IRA then you need to file an amended return and pay the taxes on the contribution that you did not make.

A Roth IRA is never deductible. If you can prove that the Block employee told you that it was you may be able to get Block to cover the interest and penalties that you will be hit with.

The IRS eventually will catch this but it may take a year or more for it to happen. The longer that you wait to correct the issue the more it's going to cost you.

Answer 4

Like "PepsiLime" I am guessing that this had to do with the Retirement Savings Credit and not that Block tried to deduct a Roth IRA.

Go back to Block. They should amend the return for free. You will have to pay back taxes plus penalties and interest. As it may not be Block's fault, they probably won't pay the penalties and interest.

Answer 5

What probably happened was that you got a $400 credit for the retirement savings credit. If you didn't contribute to the Roth IRA in time, you need to file an amended 1040X for 2006 to correct this. The IRS might or might not catch up with you, but better for you to tell them that you goofed, then them to tell you that you goofed.

Answer 6

File a corrected tax return for 2006.