fun activity of the day – snail mail from the IRS

We got mail from the IRS today that we owe $8,600 on our 2005 taxes (5,574 in additional tax, 1,000 in canceling the child tax credit, 1,315 in penalty, 711 in interest).  Thankfully, we don’t actually owe anything.

Long story short, make sure you consider filing a form 8606 if you’re going to recharacterize a conversion in a later year than the conversion – the IRS assumes the 2 transactions aren’t paired up, so you lose the “automatic cancel” effect (they cancel out as if neither ever happened, thanks to the formulas used during recharacterization).

Now I just get to make copies of the relevant forms and include an explanation as to why our 2005 taxes were correct as-is :)

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