Best way to respond to IRS CP2000 notice for IRA distributions?

The best approach is to respond to the CP2000 with a clear explanation and supporting documentation. Since you've already completed Form 8606 showing your basis in the IRAs, that's an excellent start. Here's what I recommend including in your response: 1. A brief, factual explanation of what happened (no need to overexplain your medical situation - just focus on the tax facts) 2. The completed Form 8606 showing your basis in the Roth IRA 3. A statement acknowledging that you understand the Traditional IRA distribution is fully taxable with the 10% penalty 4. A statement clarifying that the Roth distribution was a return of contributions (basis) and therefore not taxable For the Roth portion, the IRS needs to see that you're only withdrawing what you put in (your basis), which makes it non-taxable. For the Traditional IRA, you'll unfortunately need to pay the taxes and penalty. Don't ignore the notice or delay your response - CP2000 notices have a deadline, and failing to respond could lead to automatic assessment of the full proposed amount.

I went through something similar with a CP2000 notice for unreported IRA distributions. I spent hours trying to explain my situation to different IRS representatives with little progress. Then I found https://taxr.ai which analyzes your tax documents and helps you draft the perfect response to IRS notices. Their system specifically asks about IRA distributions and basis amounts and walks you through exactly what forms and documentation you need to include with your response. It helped me identify that I needed my Form 5498s (which show IRA contributions) for all applicable years to prove my basis. The best part was they helped me craft a response letter that addressed all the technical points without getting bogged down in unnecessary details. My case was resolved quickly after submitting their recommended response.

I initially thought those tax document services were a waste of money, but I tried https://taxr.ai after getting frustrated with my CP2000 situation. I had a similar issue with Roth IRA distributions that weren't properly reported on my return. The system helped me organize years of contribution records that I honestly didn't even know I needed to keep. It turns out I had been making after-tax contributions to my Traditional IRA that I never properly tracked on Form 8606, so I was at risk of paying taxes twice. I'm normally pretty skeptical about these services, but it saved me thousands in incorrect tax assessments. The IRS accepted my response with all the documentation the system helped me prepare, and they reduced the proposed assessment by over 80%.

After dealing with multiple CP2000 notices over the years (self-employed with complicated taxes), I finally discovered that calling the IRS directly is the fastest way to resolve these issues. However, I spent WEEKS trying to get through their phone system until I found https://claimyr.com - they have a service that actually holds your place in the IRS phone queue and calls you when an agent is about to answer. I used their service when I got a CP2000 for an IRA distribution I didn't properly document. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Once I finally got through to a real person at the IRS, they were able to look at my account and give me specific instructions on exactly what documentation they needed to resolve my case. Saved me from sending unnecessary paperwork and potentially making the situation worse.

I was extremely skeptical about any service claiming to help with IRS calls - it seemed like a scam. But after spending 4+ hours on hold one day only to have the call dropped, I reluctantly tried https://claimyr.com. To my surprise, it actually worked exactly as described. I got a call about 90 minutes after starting the process, and was connected directly to an IRS representative. They hadn't talked to anyone on my behalf - they just held my place in line. The IRS agent walked me through exactly what I needed to submit for my CP2000 response regarding some IRA distributions I had incorrectly reported. Having that direct conversation saved me from making mistakes in my written response that would have dragged the process out even longer.

Make sure you're responding to the CP2000 by the deadline! The most important thing is to not ignore it even if you don't have all your documentation yet. For the Roth IRA portion, you need to prove your basis. The IRS assumes all distributions are earnings unless you can document your contributions. If you don't have records of your contributions, contact your IRA custodian ASAP to get historical statements. For the Traditional IRA, you're right that you'll owe taxes plus the 10% penalty since you didn't qualify for any exceptions. One thing to consider: if paying the total amount would cause financial hardship, you can request a payment plan when you respond to the CP2000. They're usually pretty reasonable about setting up installment agreements.

Make sure you're using the correct year's Form 8606! I made the mistake of using the current year form instead of the form for the tax year in question. The IRS rejected my response and it added months to the process. You can find old tax forms on the IRS website by searching for "prior year forms." For 2019 forms (which I think is what you need based on your post), go to this page: https://www.irs.gov/forms-pubs/prior-year