Need Help with Audit - Back Door Roth IRA Conversion Flagged by IRS

What you're experiencing is actually quite common with backdoor Roth conversions. The issue is likely in how the transaction was reported, not that you did anything wrong. When you do a backdoor Roth, you need three forms to tell the complete story: Form 8606 (which you filed), the 1099-R from the traditional IRA distribution, and Form 5498 from both the traditional IRA contribution and the Roth IRA that received the conversion. The IRS systems sometimes flag these transactions because the 1099-R by itself looks like an early withdrawal. The distribution code "2" on your 1099-R actually means "Early distribution, exception applies" which is correct for a conversion. Your 1099-R does look standard for this type of transaction. For your audit response, I'd recommend sending copies of: 1) Your Form 8606 for each of you showing the nondeductible contributions and conversions, 2) The Form 5498s showing the contributions to the traditional IRAs, and 3) The Form 5498s showing the amounts converted into the Roth IRAs. This complete paper trail should clear things up. Don't stress too much - this is fixable with the right documentation!

After getting hit with a similar audit last year, I found this amazing resource called taxr.ai (https://taxr.ai) that saved me so much headache. It's like having a tax expert review all your documents - I uploaded my 8606 forms, 1099-Rs, and 5498s, and it identified exactly what went wrong in my situation. For backdoor Roth conversions, there are so many little details that can trigger an audit. The system analyzed my forms and pinpointed that my tax preparer had checked the wrong box on Form 8606 which made it look like I hadn't properly reported the conversion. It even generated a response letter to the IRS explaining everything correctly. The audit was resolved in my favor once I had the right explanation of what happened. Might be worth checking out since backdoor Roth IRA audit issues are one of their specialties.

I just wanted to update everyone after trying taxr.ai for my backdoor Roth audit issue. Really impressed with how it worked! I uploaded my forms and it immediately identified that my 8606 was missing some key information in Part I that made the IRS unable to connect my nondeductible contributions to the conversion. The system generated a response letter explaining the backdoor Roth process step by step, cited the relevant tax codes, and told me exactly which additional forms to include with my response. Just heard back from the IRS yesterday and they've accepted my explanation - no additional tax or penalties! What a relief to have this resolved. The audit had me so stressed I couldn't sleep. If anyone else is dealing with backdoor Roth conversion issues, definitely worth checking out.

If you're having trouble getting through to the IRS about this audit, I had a similar issue and used Claimyr (https://claimyr.com) to actually get a real person on the phone. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you when an agent is on the line. Check out how it works here: https://youtu.be/_kiP6q8DX5c I was trying to resolve my backdoor Roth audit for WEEKS with no luck getting through to anyone. Used Claimyr and got connected to an IRS agent within a day. The agent was able to look at my file while I explained the conversion process and documentation I had. She actually told me exactly what I needed to send in to resolve it. Sometimes just talking to a human at the IRS can save you tons of time compared to mailing documents back and forth hoping they understand what you're trying to explain.

I need to eat some crow here. After my skeptical comment, I tried Claimyr out of desperation because I was getting nowhere with my backdoor Roth audit situation. I was honestly shocked when they called me back with an actual IRS agent on the line about 4 hours after I signed up. The agent was able to pull up my file and explained that my audit was triggered because my tax preparer had incorrectly coded the rollover on form 8606. She walked me through exactly what documentation I needed to send in and even gave me a direct fax number to send it to for faster processing. I'm not a fan of paying for something that should be a basic government service, but after weeks of frustration, getting the issue resolved in one phone call was worth it. My audit is now closed with no additional taxes owed.

Just to add some clarity on the forms involved with backdoor Roth IRA conversions since there seems to be some confusion: Form 1099-R: Reports distributions from retirement plans. For backdoor Roth conversions, box 7 should ideally have code "G" (direct rollover/conversion) but many brokerages use code "2" (early distribution, exception applies) instead. Both can be correct depending on circumstances. Form 8606: This is where most audit triggers happen! Parts I and II must be properly completed. Part I documents your nondeductible contribution to traditional IRA, while Part II reports the conversion to Roth IRA. The basis amount from Part I should carry over correctly to Part II. Form 5498: Shows contributions to IRAs. You should have one showing your contribution to the traditional IRA and another showing the conversion amount going into the Roth IRA. If you're trying to explain this to the IRS, make sure you send copies of ALL these forms together so they can see the complete transaction flow.

Has anyone here dealt with an audit where you had a small amount of earnings between the time you made the nondeductible contribution and when you converted it? I contributed $6k to a traditional IRA in January and it grew to $6,250 before I converted it to Roth in March. The IRS is saying I owe taxes on the full $6,250 instead of just the $250 earnings.

I went through almost the exact same situation last year with my backdoor Roth conversion audit. The IRS flagged my 2021 return for the same reason - they treated my conversion as an early withdrawal despite proper Form 8606 filing. What really helped me was organizing a complete timeline of the transactions with all supporting documents. I created a simple table showing: 1) Date of nondeductible contribution to traditional IRA, 2) Form 5498 showing the contribution, 3) Date of conversion to Roth IRA, 4) Form 1099-R showing the distribution, and 5) Form 5498 showing the Roth conversion deposit. I also included a cover letter explaining that this was a legitimate backdoor Roth IRA conversion, not an early withdrawal, and referenced IRC Section 408A(d)(3) which governs IRA-to-Roth conversions. The key was showing the IRS that every dollar distributed from the traditional IRA was immediately deposited into the Roth IRA. My audit was resolved in about 6 weeks with no additional taxes or penalties. The IRS auditor even mentioned that these cases are becoming more common as more people do backdoor Roth conversions, but their computer systems don't always recognize the transaction pattern correctly. Don't panic - you did everything right, it's just a documentation issue that can be cleared up!