RMD Not Taken in 2010

[GraceNY]

Taxpayer did not take 2010 RMD (approximately $500). Penalty would be $250 when calculated on Form 5329.

Form 5329 Instructions indicate that IRS can waive part or all of this tax if taxpayer can show that any shortfall in the amount of distributions was due to reasonable error and the taxpayer is taking reasonable steps to remedy.

Anyone ever request this waiver? What was the reason? Was the waiver granted?

Background: Taxpayer mailed me his tax documents. I noticed one IRA 1099-R was missing and questioned it. Taxpayer checked with financial institution and found out that no distribution was made in 2010. Taxpayer recalls having had this set-up on automatic every year. Accoridng to institution, no. When checking their documents, they find a letter from this institution stating "if you do NOT return this form to us, we will automatically process and send your 2010 RMD." This obviously did not happen. When taxpayer called institution in regards to this letter, they denied any culpability. Interesting though was the fact that institutions rep indicated that there were other calls concerning the same issue.

No lectures on personal responsibility, please. I'm just trying to minimize the tax liability of an older taxpayer in their mid 70's who is of limited means and made an innocent mistake.

Thank you in advance for any input.

Grace

[Lynn EA USTCP in Louisiana]

Advise your client to take the 2010 RMD ASAP.

My own mother one year forgot to take her RMD. We filed the return without the 5329 and it was never questioned. But if it had been then we'd have responded, explaining the circumstances, that the RMD was taken as soon as it was discovered to have have been missed, procudures now in place to make sure it doesn't happen again, etc.

The proper way would be to file the return with the 5329. Some preparers recommend paying the penalty tax and then asking for it to be refunded, while others (and I'm in this camp) recommend filing the 5329 without paying the penalty and waiting to see what happens.

Lynn

Lynn Jacobs, EA, NP

Kenner, La

[Jack from Ohio]

The IRS will hold the taxpayer responsible. Take the RMD ASAP. I agree with Lynn on procedure. IRS is busy chasing non-conforming paid tax preparers by checking PTINs and 8879s.

[grandmabee]

I have had a few not take the RMD but I always do the 5329 and they pay the penalty. I then request waiver and explain the problem with the bank. Mine has alway gotten the waiver but...... it takes forever to get the refund

[SCL]

my comment...without research confirmation (ie; from some vague memory).

i believe(?), rmd applies to the total retirement balance...something not easily known (especially to the irs). if OTHER retirement/pension withdrawals are more than a total rdm requirement, then no harm, no foul on this small, 500 amount.

[kcjenkins]

That letter from the institution may not create a legal obligation, but should be good for a 'reasonable cause' argument for a waiver. However, it's the taxpayer's responsibility, when they do not get the 1099R, to follow up and question the lack, so the longer the time between the mistake and the making of the withdrawal, the harder the chance of winning the waiver. However, they do often grant it.