Discussion:IRA minimum Distribution not Taken
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Discussion Forum Index --> Tax Questions --> IRA minimum Distribution not Taken
| 18 February 2008 | |
| A new client came to us this year that was 74 years old. after a fact finding session, we determined he was not taking his minimum IRA distributions. Apparently, his present IRA custodian has not advised him each year to take minimum distribution; beginning the year following the year he turned 70 1/2. If we have him "catch up" his minimum distibutions this year, there is still the issue of a $2600 penalty (50% of minimum amount not taken). Please advise your thoughts on how the penalty should be communicated to the IRS via his 2007 tax return, or separate letter, or some other strategy. thank you in advance for your comments. | |
Scottycoyote (talk|edits) said: | 18 February 2008 |
| i had the same issue happen this year. From all my research the course of action i learned was to immediately do all the catch up distributions, then to send in (i think its form 5329) the proper form by itself along with a letter of explanation asking for abatement of the penalty. Any reasonable excuse has to be considered, and you could just use your clients age and forgetfulness. Mine is still in the works as well...........good luck. | |
| 18 February 2008 | |
| I have had this happen in the past.
I suggest, pay the penalty, via form 5329. Then in a seperate letter request abatement of the penalty. I have found it helps if you can tell them that upon dicovery of the error all distributions were taken (catch-up). The abatement works best when you can justify by giving the IRS employee a method for abating the penalty. Quote IRM section 20 and use the reason "reliance on competent advisor" or somthing like that. It's in the IRM P 20. Be prepared to get turned down, but send additional letters, keep stepping up the chain of command. But start low, so you can ask someone else when rejected. | |
| 19 February 2008 | |
| Would an amended return be better than a separate letter requesting abatement? Pay the tax and penalty, then file a claim for refund? What custodian did not advise the client to begin withdrawing? A small brokerage? Maybe the client is like most of the rest of us and don't want to read all the junk they send us. I like the taxpayer's odds of prevailing, however be prepared for a long process. | |
| 19 February 2008 | |
| I've had this happen a few times, I've always done the same thing and it's always worked. I have them do the catch up immediately (no amended return, they took the distribution in the current year as a catch up, you can't go back). Then I just send a letter for penalty abatement (I've never had them pay the penalty upfront) and I've never had one denied. I think the IRS is pretty understanding on this issue because the truth is it usually happens because of the client's age and forgetfulness. In the letter just say that the taxpayer wasn't aware and as soon as the client realized the mistake he immediately made the catch up distribution. I always send proof of the catch up along with the letter. And I end it by saying that the client is now aware of the requirement and is set up for automatic RMD from now on and that the mistake will not happen again. It's always worked for me. | |
| 19 February 2008 | |
| Thanks for all your comments. We are going to implement your recommendations this week and send a letter to the IRS using the forgetfulness argument, and also referencing IRM section 20. the IRA was held by a small credit union, with no designated person in charge of our client's account. There process may have contributed to the problem. Thanks again... | |
