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Discussion:When to pay RMD late penalty?

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Discussion Forum Index --> Advanced Tax Questions --> When to pay RMD late penalty?


Discussion Forum Index --> Tax Questions --> When to pay RMD late penalty?

Taxaddict1 (talk|edits) said:

22 March 2014
Taxpayer was supposed to withdraw an RMD in Dec 2013. But he forgot and took the withdrawal in Jan 2014. So he was not issued a Form 1099-R for year 2013 since no withdrawal had been made in that year.

Does the taxpayer pay the RMD late penalty in his 2013 or 2104 tax return?

Ckenefick (talk|edits) said:

22 March 2014
I'd either (1) show the distrib on his 2013 return as taxable and no penalty or (2) request a penalty waiver.

Taxaddict1 (talk|edits) said:

22 March 2014
But then he will have to deal with the Form 1099-R that they will issue him next year because the withdrawal was done in 2014. Does it make the situation more complicated?

Ckenefick (talk|edits) said:

22 March 2014
Show it as non-taxable or tax it again if it's peanuts, which I'm sure it is.

Taxaddict1 (talk|edits) said:

22 March 2014
Thank you.

But if he chooses to report the distribution and pay the penalty in the 2014 tax return, is it allowable?

Ckenefick (talk|edits) said:

22 March 2014
Based on the way things stand now: Guy should have taken an RMD by 12/31/13. He didn't. You would therefore complete Form 5329 - the one that says "2013" in the upper right-hand corner and you'd attach it to the guy's 2013 Form 1040. The penalty, as computed on the 2013 Form 5329, transfers over to Page 1 of the guy's 2013 Form 1040. Hopefully, all of this has answered your question (reproduced below).

Does the taxpayer pay the RMD late penalty in his 2013 or 2014 tax return?

Taxaddict1 (talk|edits) said:

22 March 2014
Thank you Ckenefick.

What is the best way to handle the penalty? Since the late distribution is to be reported in the 2013 tax return, the penalty will show up on the balance due of the tax return. Is it advisable for him to pay the penalty with the tax return first, and then apply for a waiver and the refund afterward?

Ckenefick (talk|edits) said:

22 March 2014
If you're all worried about it, (1) don't show the distrib on the 2013 return (2) request a waiver of the penalty on the 2013 return and (3) don't pay the penalty with the 2013 return...under assumption waiver will be granted. See the yellow box, read the form instructions, we've had plenty of discussions on it.

Frankly (talk|edits) said:

22 March 2014
Page 3...

https://docs.google.com/viewer?a=v&q=cache:olo2KMSk7uEJ:www.aicpa.org/download/cpaltr/2004_02/supps/F-SmlFeb.pdf+%22waiving+penalties+with+penmenship%22&hl=en&gl=us&pid=bl&srcid=ADGEESjdeX1oWZrLkfmGEyiaPtV_fxMBztotUrGBejfs6cpZM5bodaFX8R-EnoyQaPJxfKhyB-roZzd4PwyvXlVbAuiZRS37wcnKwjncTmzQvaUuf27yzQurKIm17ol9Ix-3azEXkx89&sig=AHIEtbSUp30jV4-SeLZtl9HiIzE6Ea9dcw

Aatop (talk|edits) said:

22 March 2014
I've had this come up several times in the past 2 years. Ditto what Chris says. So far, I've had no issues or notices with doing it this way.

Taxaddict1 (talk|edits) said:

22 March 2014
Thank you for all the replies.

If we request for a penalty, would it be better for them to paper file with the request attached to the tax return?

I know my tax program allows me to attach a statement to file the tax return electronically. But I am worried they would not pay attention to the statement if the tax return is e-filed.

Laketahoecpa (talk|edits) said:

22 March 2014
You can e-file it. The way Lacerte does it, Form 5329 Part VIII is completed. The amount subject to penalty is listed to left of line 52 with code"RC" next to it. So they will know your requesting waiver. The waiver stmt is attached electronically to that form.

Aatop (talk|edits) said:

23 March 2014
I efiled and attached statement w/ RC by Line 52 as Laketahoecpa states.

Taxaddict1 (talk|edits) said:

23 March 2014
Laketahoecpa, do you enter "0" on line 52 so there will be no penalty on the tax return, just like you have assumed that the waiver will be granted? Or do you still enter the full amount of the required distribution there so the penalty will be charged on the tax return?

Taxaddict1 (talk|edits) said:

23 March 2014
By the way, the instruction of Drake advises to "enter the amount the taxpayer wanted waived in this field (line 52)" so there will be no penalty charged on the tax return. And then efile the tax return with the attached statement of reasonable cause.

Does Lacerte handle it in the same way?

Laketahoecpa (talk|edits) said:

23 March 2014
Yes - that's how Lacerte handles it. You assume the waiver will be granted (which it will be). Be sure to put in your statement that the taxpayer has already remedied the situation by taking the withdrawal in January.

Aatop (talk|edits) said:

23 March 2014
From 5329 instructions:

Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows. 1. Complete lines 50 and 51 as instructed. 2. Enter “RC” and the amount you want waived in parentheses on the dotted line next to line 52. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 52. 3. Complete line 53 as instructed. You must pay any tax due that is reported on line 53. The IRS will review the information you provide and decide whether to grant your request for a waiver.

Perhaps this will help from Lacerte support website: http://accountants.intuit.com/support/tax/lacerte/document.jsp?product=LACERTE_TAX&id=GEN63743

Aatop (talk|edits) said:

23 March 2014
Sorry I wasn't trying to repeat you Laketahoecpa. It took me forever to edit my comment and then I didn't format it all right. I couldn't see your comment until I had already posted.

Laketahoecpa (talk|edits) said:

23 March 2014
No need for apologies Aatop!

Ckenefick (talk|edits) said:

23 March 2014
One time, I put a quasi waiver in with one of these, just to see what would happen. It said this, "Taxpayer didn't feel like taking his RMD. He'd like his IRA to grow so his kids can inherit it. He has no intention of remedying the missed RMD right now, but he will at some point in the future. Taxpayer feels this is reasonable and requests a waiver. The penalty has not been computed herein, on this return. Please notify the taxpayer if you disagree."

Taxpayer never heard anything back.

Taxaddict1 (talk|edits) said:

23 March 2014
Taxpayer is a 73 years old woman. She has unintentionally forgotten to take the withdrawal. But she had immediately made the remedy to take the distribution in February next year when she remembered about it. And she has also already set up an automatic withdrawal plan with the IRA custodian so the chance of this happening again is next to none.

Is this a good enough reasonable cause request for the waiver?

Ckenefick (talk|edits) said:

23 March 2014
Where is her husband?

Taxaddict1 (talk|edits) said:

23 March 2014
Her husband is even older and it seems to me her mental ability is better comparatively. So the chance that her husband being able to remind her to do something is quite slim.

Shall we mention anything about her husband in the request?

Aatop (talk|edits) said:

23 March 2014
Maybe I'm too naive or too informal but I just can't see how being honest and saying she is (1) elderly, (2) forgot, (3) steps have been taken to remedy the problem and (4) that she has made provisions to keep this from happening in the future through automatic withdrawals would result in the IRS denying the request for waiver of the penalty. I can't imagine that this is uncommon.

JR1 (talk|edits) said:

March 24, 2014
I've just been handed one that goes back to 2011. Are amended returns required? These are stand alone forms, so I'm thinking that I should just print the appropriate year's 5329 and attach waiver request and sign and mail?

Wiles (talk|edits) said:

24 March 2014
...or you can just wait for the IRS to send a notice, which will be approximately never.

JR1 (talk|edits) said:

March 27, 2014
So dare I think about just having her taking the distribution now and not filing any of the 5329s? That seems a bit 'out there' even for me, Rogue Accountant.

Nightsnorkeler (talk|edits) said:

27 March 2014
If the 5329s are never filed, when does the SOL for assessment of the penalty (tax) run?

JR1 (talk|edits) said:

March 27, 2014
Yeah, exactly. I just did 'em, no biggie. Chased down Chris's excellent article on waiver penmanship and kept it short.

Wiles (talk|edits) said:

27 March 2014
If the 5329s are never filed, when does the SOL for assessment of the penalty (tax) run?

Excellent question.

Another question: Does a penalty waiver need to be requested within 3 years of the original due date or within 3 years of the penalty assessment?

Ckenefick (talk|edits) said:

27 March 2014
If the 5329s are never filed, when does the SOL for assessment of the penalty (tax) run?

The 5329 is an island unto itself. If you leave it blank and don't disclose the penalty, the statute never runs. The statute doesn't run with the 1040 statute. If the guy dies, you therefore put the executor in a precarious position if the executor learns of this during the estate administration...because he's/she's not supposed to distribute if unpaid income taxes are in the mix.

Another question: Does a penalty waiver need to be requested within 3 years of the original due date or within 3 years of the penalty assessment?

I think the above answers your question.

And I think those of you who might be inclined to blow this issue off might be making a massive mistake. If executor finds that RMD's weren't taken..."Oh my, what's this? Why is Dead Joe's IRA balance so high...let me check...wow look at that paperwork, no RMD's taken in the last 10 years. Who was Joe's tax return preparer???"

You might try to blame it on the custodian, but they'll say, "We sent Joe the paperwork every year, tried to contact him, etc. ...but he blew us off. We legally cannot make an unauthorized distribution."

Preparer would say, "Look, I informed Joe of his RMD requirement each year, but he didn't listen." And the judge in the malpractice suit, assuming he believes the preparer, might or might not hold the preparer liable. He might not hold the preparer liable, seeing that had the preparer assessed the penalty, Joe's assets would have gone down commensurately, leaving less for Joe's kids to inherit. Pay now or pay later in a way. But either way, Joe's kids will likely want to blame someone.

Wiles (talk|edits) said:

28 March 2014
The 5329 is an island unto itself.

What does that mean? It is part of the Form 1040 filing unless a 1040 is not required.

The Rogue Accountant is not suggesting to blow off the RMD indefinitely. Rogue is only suggesting fixing it immediately upon discovery and blowing off the 5239 indefinitely.

Ckenefick (talk|edits) said:

28 March 2014
More cut and paste fun:

As per Rogue Accountant:

So dare I think about just having her taking the distribution now and not filing any of the 5329s?

As per the Tax Court:

Mr. Paschall did not file Form 5329 for any year at issue; however, he timely filed Forms 1040 for all years. He asserts that Form 5329 is not a separate tax return from Form 1040, that the statute of limitations started running when he filed the Forms 1040, and that the period of limitations had expired before respondent issued the notices of deficiency for the 2002, 2003, and 2004 tax years. Respondent asserts that Form 5329 is a separate tax return from Form 1040 and that since Mr. Paschall never filed Forms 5329, the section 4973 excise tax may be assessed at any time.

We hold that the filing of the Forms 1040 did not start the statute of limitations running for purposes of the section 4973 excise tax in the absence of accompanying Forms 5329.

Wiles (talk|edits) said:

28 March 2014
Hrmph. You make living on the edge no fun.

Jeff, are you still going rogue and not sending in those Sch D attachments like you are supposed to?

Ckenefick (talk|edits) said:

28 March 2014
I live by the sword,

I take my boys everywhere I go because I'm paranoid

(Geto Boys)

JR1 (talk|edits) said:

March 28, 2014
If you'll note above, I took the more cautious approach and prepared the forms, client mailing first one off today. Since it appears IRS is fairly liberal with the waivers, it seemed worth the go. And if it's denied, we'll resubmit to a new set of eyes.

EADave (talk|edits) said:

29 March 2014
Now that's the creep that I be seeing in my sleep! Geto Boys, great stuff!

It's funny, I had this exact issue come up this week with a new client. Hadn't taken an RMD since 2011; just like JR1's client. I've read that since these forms are "an island unto itself" that each form should be mailed with a waiver request. I see this client next Saturday so it's good to hear this information. Thanks for bringing up this topic.

Next time just check the yellow box.  %&$# it feels good to be a gangsta!

Ckenefick (talk|edits) said:

29 March 2014
I do believe, EADave, that the founding member of the Geto Boys, Willie D, is from Houston, Texas...a golden gloves boxer, if I might add...

Ckenefick (talk|edits) said:

29 March 2014
This year, Halloween fell on a weekend,

Me and Geto Boys was out tricker treat n,

Robbin' little kids for bags...

EADave (talk|edits) said:

29 March 2014
I was a fan indeed, also NWA, Public Enemy....ah, 80/90's rap...even some Rob Base from time to time! Alright, back to work!

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