Consider this possible scenario:
========== A taxpayer has a traditional IRA some 30-40 years ago, consisting solely of a one-year certificate of deposit, funded by a deductible contribution to that IRA. On the advice of the IRA's custodian, the taxpayer included interest from that CD in taxable income, paid tax on it, and included a form 8606 with the return. By the time the taxpayer discovered that the advice was erroneous, it was too late to amend the return and exclude that interest from income. No other events over the years caused a change to the basis. Now suppose, decades later, that the amount of that interest is less than 1% the value of the IRA, so more than 99% of the amount of any withdrawal is taxable. Accounting for nondeductible contributions is a pain, and the taxpayer might think it was not worth saving a few dollars. ==========
Can the taxpayer simply declare the entire withdrawal as taxable income and pay tax on it, ignoring the basis? Though that would technically be an inaccurate return, are there any circumstances where this could create a problem? (And if it does, is the worst-case scenario that the IRS would insist the basis be considered, which would lead to a refund of a few dollars of tax?)