IRS Announces New Rules for Calculating IRA Income
If you make a contribution to your IRA, change your mind, and request that the contribution be returned to you on or before the due date of your tax return, the old rules stated that you must report a certain amount of taxable income based on the earnings in the IRA account for the entire year of the contribution. The rules also stated that this taxable income amount could not be a negative number.
New rules for reporting income relating to a returned contribution allow for income to be calculated based only on the period of time in which the IRA held the contribution rather than the entire year, and the new rules allow for this amount to be a negative number.
In addition, there are rules for reporting taxable income when an IRA contribution is recharacterized from one type of IRA account to another, and the rules, though similar to the rules for reporting income on a returned contribution, allowed for a negative amount to be reported as taxable income.
New rules for reporting taxable income relating to recharacterized IRA contributions will allow for the income to be calculated based only on the period of time in which the first IRA held the contribution rather than the entire year. This amount is still allowed to be a negative number.
These rules are described in IRS Notice 2000-39 and will be incorporated into Internal Revenue Bulletin 2000-30, which will be released on July 24, 2000.
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