Roth distribution and taxes

abbrenner5 · Jan 21, 2026 · 3 replies

Hi ChooseFI community,

I am struggling with a tax issue and thought I would see if anyone has additional thoughts. I will try to explain succinctly.

In October of 2024 I received a notification from the IRS that I underreported on my 2022 taxes and owe taxes on a Roth IRA distribution ($35,000 I used towards a down payment on a home) and penalty and interest. I did miss reporting this on my taxes so made an honest mistake. However, I don't believe I owe the $15,000+ dollars the IRS claims I owe. The case is still dragging on - it has been transferred to tax court and then another IRS appeals court. Yesterday an IRS appeals lawyer told me that I owe because my distribution did not meet the exceptions for a Roth IRA (over 59.5, disabled, first time home buyer, etc). This is true.

However, I have been investing in this account since 2001 and I withdrew money that I contributed to the account (I have statements showing my contributions to this account). My understanding is that the benefit of a Roth IRA is that you are allowed to take out your own distributions - which are taxed before they go in since the funds come from income (at least for me they did) - and thus you don't need to pay taxes twice on this money, nor a penalty because of the rules of a Roth IRA.

I am curious to see if anyone has additional insights, or can point out something I am missing, or has had a similar situation in the past and might be able to help. My next step would be hiring an attorney, but I know this will be quite expensive and would rather settle this on my own.

Thank you for reading this long message and for any help!

Allison

Jill Nordmann

2 months ago

Hi Allison, Straight talk from an experienced CPA who has untangled countless IRS messes: If the matter has gotten to the point of going to Tax Court, you would be wise to hire a tax attorney. This has progressed way beyond DIY. For the cost of having a professional prepare your return you would have avoided this mess.

brub888

2 months ago

As usual Roberto gives you great advice. My first action when confused about tax issues is to broadly describe the circumstances to LLMs (e.g. ChatGPT, Gemini, Claude, etc) and keep requesting more information to avoid hallucinations. Always follow up with "are you sure?" Intuit's Turbotax and H&R Block's TaxCut used to have good online message boards which contained many answers to tax questions but sadly they have faded away in the past five years.

Roberto Sánchez

2 months ago

According to IRS Publication 590-B ([

www.irs.gov

](https://www.irs.gov/publications/p590b#en_US_2024_publink100091157)) the way to figure the taxable part of a non-qualified Roth IRA distribution (which is what your distribution was) is by filling in Form 8606, part III.

Your distribution amount was $35,000 (the amount you would enter on line 19), your qualified first-time home buyer amount is $0 (line 20), and the difference is $35,000 (line 21). Now, as long as your basis (line 22, [

www.irs.gov

](https://www.irs.gov/instructions/i8606#en_US_2023_publink25399ed0e1644)) is more than $35,000, then that makes your line 23 amount negative (or $0, if you had exactly $35,000 in basis), which means you wouldn't owe tax (assuming that your account had been open for at least 5 tax years prior).

Did you happen to file a form 8606 with your 2022 tax return? Perhaps that's why the IRS seems to think that you owe tax. If you didn't include a form 8606, they would probably assume that your Roth IRA basis is 0, which would mean that whole amount of the distribution would be subject to the penalty.

Roth distribution and taxes

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