CUSTOMER SERVICE MEMO CSTP0202

SUBJECT: Supplemental instructions for Form 8606

Why supplemental instructions? If you received any distributions (withdrawals) from a Roth IRA in 2001, the taxable amount is computed on Form 8606. However, the proper computation sometimes depends on information not available from a prior Form 8606 or not available through the translation of the prior return. Therefore, if you received a Roth IRA distribution in 2001, you may need to make an adjustment to computed results for your basis in Roth IRA contributions (line 20) or your basis in Roth IRA conversions (line 22). This document expands the instructions on our Tax Forms Guide so that you can determine when an adjustment is necessary and how to make it.

Basis in Roth IRA contributions (to replace 2 paragraphs on page 2-327 that follow line 19 of Form 8606):

Basis in contributions to Roth IRAs from your 1999 or 2000 Form 8606. (auto-calc) The computation for this line is based on entries that precede line 19 (from the 1999 and 2000 Forms 8606). Assuming those entries are correct, either by translation or your own manual entry, there are two cases for this line, one of which may require your special attention:

Case 1. If you received a distribution from a Roth IRA in 2000, your entire basis from prior contributions will appear here automatically, and no adjustment is necessary.

Case 2. If you received no distribution in 2000, but received any in 1999, your basis from prior contributions through year 1999 will appear here automatically. However, if you made any Roth IRA contributions in 2000, you must use the Override Key to access this line and add that contribution to the automatically computed amount that otherwise appears here.

OR your entry for 1998 to 2000. If you received no Roth IRA distributions in 1999 or 2000, no amount will appear on the preceding line and you must make an entry here yourself. There are two cases that apply:

Case 1. If you received a distribution from a Roth IRA in 1998, you must enter here line 19c less line 18 (but no less than zero) plus any Roth IRA contributions (adjusted by any recharacterizations) for 1999 and 2000.

Case 2. If you received no distribution from a Roth IRA in 1998, you must enter here any Roth IRA contributions (adjusted by any recharacterizations) for 1998, 1999, and 2000.

(Note that "to 2000" was missing from the on-screen label for this line in releases 2002.02d and prior).

Basis in Roth IRA conversions. The Tax Forms Guide implies the full automation of this line based on your entries (or translation) from prior Forms 8606. However, complete automation for all cases is ensured only in releases after 2002.02d. Therefore, if you need to report a Roth IRA distribution for 2001 and had any conversions to Roth IRAs in the past, we recommend that you update to a release later than 2002.02d (via the "Check Web for Updates" icon in your HowardSoft Tax Preparer program folder). Otherwise line 22 of Form 8606 may not reflect all prior conversions and you may have to override the line to include additional amounts in accordance with the table for line 22 in the IRS instructions for the 2001 Form 8606. For any release after 2002.02d, the following paragraph replaces the one on page 2-328 that follows line 21:

Basis in conversions to Roth IRAs from 1998, 1999, and 2000 from prior Forms 8606. (auto-calc) Based on amounts that you entered (or that were translated) from the 1998, 1999, and 2000 Forms 8606, this is the basis in Roth conversions as of year 2000 computed in accordance with the IRS instructions for line 22. However, if you entered the amounts from prior Forms 8606 yourself rather than through translation of prior returns, you must make sure that your entries for line 15 of the 1999 and 2000 Forms 8606 do not exceed line 14c of those forms, irrespective of the IRS instructions you may have followed for those years.