Question: My client did a conversion of a traditional IRA to a Roth IRA in 2010. The client intended to do a two year deferral of the income tax into 2011 and 2012, but he recently passed away. Can his beneficiaries still take advantage of the tax deferral on the conversion?
The Instructions for IRS Form 8606 for 2010 state
If the taxpayer died during 2010 after making a conversion, the taxable amount of the conversion may not be spread over 2 years (2011 and 2012). The tax return of the deceased taxpayer must show (a) the entire taxable amount in 2010 or (b) a re-characterization (see page 3) of the conversion.
Likewise, if the taxpayer does a conversion in 2010, elects to defer, and dies in 2011, the entire previously unreported amount is taxable in the year of death.
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