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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29644
Experience:  Taxes, Immigration, Labor Relations
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For 15 years Ive claimed simple IRA contributions but I didnt

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For 15 years I've claimed simple IRA contributions but I didn't make them to an official IRA account, through my own stupidity I guess. I thought I could just put money in investments/savings but now realize it has to be an official account.
Am I completely screwed? Is there anything I can do, like officially creating an IRA now, then taking distributions from it when I'm required to at 70 1/2 years old, or is that pointless now and I should expect to be fined/prosecuted about this? I'm 67.
I'd planned on taking distributions and paying taxes on them but it seems like it has to be covered by a 1099 or some other reporting form?
Thanks for your help: didn't mean to break the law, but do I need to get an attorney to sort this out? Or just hope they don't ever notice at IRS? Or start unraveling it with a CPA? Is there a statute of limitations with IRS for bonehead mistakes like this or would I have to amend every return in the past where I didn't properly claim deductions?
If you did not create an IRA account - you may not make contributions for past 15 years - regardless if that was a honest mistake.
You may only make IRA contributions for 2012 and 2013 years. That contributions are limited.
If you do not have IRA account - there is no need to make required distributions. Such distributions are required ONLY for IRA account and some other retirement account.
If you have ordinary investment account - all income received or credited on that account is taxable in the year received. You should be issued 1099 forms reporting that income - and should report on your annual tax returns.
Let me know if you need any help with reporting.
Customer: replied 4 years ago.
Hi Lev, thank you for main question is, am I liable for those past taxes I didn't pay on the claimed contributions, and would I have to file an amended return for each of all those years, or is there a statute of limitations on that?
Customer: replied 4 years ago.
The money I did put into investments and such has been reported on my past tax returns, i'm mostly concerned that if I'm ever audited, IRS will throw me in the dungeon! I'm wondering if IRS would expect me to start taking distributions if I've never actually created an IRA. In other words, there wouldn't be any 1099 so would they just expect I'd start taking distributions at 70 1/2 or would it only be triggered by a 1099?
For past years - if you incorrectly deduct IRA contributions which you did not made - that deduction is incorrect - and yes - you need to amend your past tax returns.
However - that is your choice to amend or not amend past tax returns.
I am surprised that the IRS did not catch that mistake previously. However if they will find that mistake - the IRS will be able to assess additional tax liability only for past three years - the statute of limitation limits the IRS's ability to assess tax liability.
So - I suggest to consult with your tax preparer before amending your past tax return.
However - as long as you actually do not have any IRA account - the IRS would not expect any mandatory distribution - that is not something to worry.
Let me know if you need any help.
Customer: replied 4 years ago.
Thank you Lev, that is clearing it up for me. One more question then, when I die, will the IRS assume, based on past tax returns I've filed, that my heirs would owe taxes on the IRA contributions I didn't actually make to an official IRA?
As there are NO IRA accounts - there are no any assumptions for IRA distributions - neither for you nor for your beneficiaries.
While I assume that you will live long enough to take care of all your financial matters.
The question how the IRS knows about IRA accounts? Administrators of IRA accounts (banks and financial companies) are required to issue form 5498 -
That form reports all annual contributions and balances on all IRA accounts.
Since you never made such contributions - the IRS supposed to know that deducting such contribution was incorrect - and that is why I am surprised they did not send any letter for so many years.
Lev and 2 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thank you Lev, I clicked the rating button too soon, I wanted to finish by saying your answers were very helpful, and I appreciate it very much.
You are very welcome.
Please feel free to come back if you need any clarification or help with other tax related issues.