Need help with IRS audit on backdoor Roth IRA conversion - correct forms?

The audit flag makes sense based on what you've described. The issue is likely in how the 1099-R was coded by Fidelity. For backdoor Roth conversions, the distribution code in Box 7 should typically be "2" (as yours is) but sometimes financial institutions use code "J" to more clearly indicate a Roth conversion. When you have a mismatch between what the 1099-R suggests (early withdrawal) and what your 8606 shows (Roth conversion), it can trigger an automated audit notice. This happens because the IRS computer systems initially match reported forms without human review. To resolve this, you'll want to provide your completed Form 8606 showing the nondeductible contributions and the conversion. Also include your 5498s showing the contributions to the traditional IRA and the subsequent deposit into the Roth IRA. A simple letter explaining the backdoor Roth process you followed would help too.

I went through almost the exact same situation last year and found an amazing solution with https://taxr.ai that saved me HOURS of stress. After getting that dreaded audit letter for my backdoor Roth conversion, I was ready to pay thousands for a tax attorney until a colleague recommended this service. What they did was analyze my 8606 forms, 1099-Rs, and 5498s, then created a comprehensive audit response letter that perfectly explained the backdoor Roth conversion strategy and why it was properly reported. They even identified a small error in how my tax preparer completed Part 1 of my 8606 that would have created problems. The best part was I just uploaded my documents, and they handled everything - identified exactly where the disconnect was between my forms and what the IRS was expecting to see. Their explanation was so clear that my audit was resolved within 3 weeks with no additional taxes or penalties.

Just wanted to update everyone - I decided to try https://taxr.ai after my last comment, and I'm genuinely impressed. Even though my situation wasn't an active audit (yet), I was concerned about my backdoor Roth conversion being flagged. Their analysis of my forms found that my brokerage had indeed used code "2" instead of "J" on my 1099-R, and they created preventative documentation showing exactly how the transaction should be treated. They even found a calculation error on my 8606 that would have definitely triggered an audit notice! The detailed explanation of the backdoor Roth process they provided will be incredibly helpful if I do get questioned. They really understand the nuances of how to properly document these conversions. I feel much more confident now having this documentation ready just in case.

After spending 4 DAYS trying to get through to the IRS about my backdoor Roth audit last year, I finally discovered https://claimyr.com and it was a game-changer. I watched their demo video at https://youtu.be/_kiP6q8DX5c and was skeptical but desperate. The service basically holds your place in the IRS phone queue and calls you when an actual human agent is about to answer. I got connected to an IRS agent in about 2 hours (after previously wasting entire days on hold). Once I actually spoke with a knowledgeable IRS agent, I explained the backdoor Roth conversion, referenced specific sections of Form 8606, and they pulled up my 5498s on their system. The agent was able to see that this was clearly a proper Roth conversion and not an early distribution. She updated my file right there on the call and sent me a confirmation letter. Having an actual conversation with the right IRS person made all the difference - they resolved an issue in 20 minutes that would have taken months through correspondence.

I have to admit I was completely wrong about Claimyr in my previous comment. After another failed attempt to reach the IRS about my own tax issue (not backdoor Roth related), I broke down and tried the service. To my shock, I got a call back in about 90 minutes telling me an IRS agent was on the line! After 4 separate days of trying to call myself and never getting through, this was absolutely worth it. The agent was able to pull up my record and resolve my issue in one conversation. For what it's worth to the original poster - the IRS agent I spoke with mentioned that backdoor Roth conversion audits are very common right now because their automated system often misinterprets them as early withdrawals. She said they resolve most of these quickly when taxpayers provide the 8606 forms and 5498s showing the full transaction. Having the actual person-to-person conversation made all the difference.

Just adding another perspective - I went through a similar audit last year for a backdoor Roth. What worked for me was sending a clear, concise response letter with copies of: 1) Both 1099-Rs showing the distributions 2) Both 5498s showing the Roth contributions 3) Complete Form 8606 for both my wife and me 4) A timeline showing the dates of each transaction I also included IRS Publication 590-A pages that describe the backdoor Roth process (without calling it that of course). The key was organizing everything chronologically and making it super clear that these were nondeductible traditional IRA contributions immediately converted to Roth IRAs. The audit was closed in my favor about 6 weeks after I sent the response.

Has anyone had issues with backdoor Roth conversions being flagged when using TurboTax? I did mine through TurboTax last year and I'm wondering if there's something in their software that doesn't properly code these transactions.

This is unfortunately becoming a very common issue with backdoor Roth conversions. The IRS automated systems flag these transactions because they see a traditional IRA distribution without immediately recognizing the corresponding Roth conversion, especially when the 1099-R uses code "2" instead of "J". Your documentation sounds correct - Form 8606 showing the nondeductible contributions and conversions is exactly what you need. The key is presenting a clear paper trail to the IRS examiner. I'd recommend creating a simple chronological summary showing: 1. Date of traditional IRA contributions 2. Date of Roth conversions 3. Reference to your 8606 forms showing basis 4. Your 5498s confirming the transactions Include a brief explanation that these were nondeductible traditional IRA contributions that were immediately converted to Roth IRAs, which is a legitimate tax strategy. Don't get bogged down in technical details - just show them the money trail clearly. Most of these audits get resolved quickly once a human examiner reviews the complete documentation. The computer systems that initially flagged your return simply couldn't piece together the full transaction from the individual forms.