Penalty Notice

L1: Penalty NoticeI just received a computer produced deficiency notice requiring me to pay a penalty on SEPP withdrawals for 2005. This is because my IRA Administrator coded the 1099-R with an 01 instead of an 02. The IRA Administrator codes all SEPP withdrawal plans now as 01, leaving it up to the individual to justify their SEPP with the IRS.
Other than the Form 5329 with the block coded as 02, what do I need to send with my cover letter to the IRS provingI am on a SEPP? My IRA Administrator does not want to provide notification on their letterhead that I have a SEPP with them and they are sending me an annuity. 2007-08-10 03:01, By: RonR, IP: [204.116.232.187]

L2: Penalty NoticeUnfortuneately, this approach by an IRA custodian has become typical. They do not want to verify 72t calculations for accuracy. Besides the 5329 claiming the exception, you can send your calculations along, possibly using the sample documentation form from this site. Obviously, your calculation should equal the 1099R unless a pro rated stub year applies. Then you need to show your pro rate factor to equal the 1099R. This all gets more complex if you started your plan mid year and have multiple 1099R forms, or worse yet the custodian combined everything. That would result in a much more extensive explanation.
To add further frustration, due to PLR 2007 20023, you can”t even transfer the plan to another custodian because that also is in IRS limbo. Let”s face it, plan documentation has become an irritant to the IRA custodians, taxpayers, and the IRS as well, since they will potentially send out thousands of inquiries asking for custodial verification which will not be forthcoming and/or levying penalties.
2007-08-10 15:31, By: Alan S., IP: [24.116.165.60]

L2: Penalty NoticeHello Ron
It this were me – I would send ONLY a short cover “note” saying, “Enclosed find Form 5329…” and the form. I would not send any supporting documentation such as your calculation etc. UNTIL THEY ASK FOR IT.
Cheri2007-08-10 17:53, By: Cheri, IP: [75.47.87.80]

L2: Penalty NoticeRonR…
>>This is because my IRA Administrator coded the 1099-R with an 01 instead of an 02Also keep in mind that you should have filed form 5329 with your 2005 tax return when you saw the code of ”1” rather than ”2”. Had it been filed with your 2005 return, you may not have had the audit.
Regardless of how the 1099 is coded, an IRA is always beween the owner and the IRS. You need to always be able to justify and document.
2007-08-10 20:20, By: Gfw, IP: [216.80.64.33]

L2: Penalty NoticeHello RonR:
When a taxpayer receives a deficiency notice, the burden of proof rests on the taxpayer. As a result, some other poster”s recommendation to simply submit Form 5329 is incorrect. You need to provide a cogent response which details and proves all of your calculations and that the actual distributions match the calculations.
In this regard tyou will need to submit external evidence of: your account balance, the interest rate selected, your age, your life expectancy, methodology selected and the resultant computations.
Once you have done this the burdenof proof switches back onto the IRS & it would then become their job to attempt (which they will not) to prove that your computations are incorrect.
TheBadger
wjstecker@wispertel.net

2007-08-11 05:33, By: TheBadger, IP: [72.42.66.27]

L2: Penalty NoticeCheri is wrong, and The badger is right. If you want to prolong the process, and aggravate the IRS, then “play games” by sending minimal documentation. If you want to get prompt and favorable results, bury them with documentation, promptly. I am a liaison to the IRS for the accounting profession in PA, and I can tell you that the IRS agents are under specific orders to exert every effort to close audits as quickly as possible, even in 1 day for field or office audits. Any delaying tactics, such as rescheduling metings, incomplete or inadequate documentation, etc. will defintely annoy any agent because he has a supervisor looking over his “completion” and “backlog/open case” statistics daily. Proceed slowly at your own peril.2007-08-11 09:33, By: dlzallestaxes, IP: [151.197.32.215]

L3: Penalty NoticeMay I please correspond offline with “dlzallestaxes” concerning particulars associated with my situation?
RonR
zebcake@hotmail.com2007-08-11 14:08, By: RonR, IP: [204.116.237.203]

L2: Penalty NoticeI have to agree with Cheri when she said,
“I would not send any supporting documentation such as your calculation etc. UNTIL THEY ASK FOR IT.”
However, I suspect the instructions within your Deficiency Notice included some form of “request” for you to provide documentation to support your position if you disagree with the IRS position, andI”m sure you do disagree with the IRS. So they have asked for it and, like TheBadger said, it”s time for you to provide all of the documentation to support your position that you have a valid SEPP Plan.
DLZ”s comments about the IRS pressing their workers to get cases closed is very valid. I do not have any first-hand knowledge about the IRS, but I do have first-hand knowledge about pressing Federal workers to get their jobs done. During my Air Force career I supervised procurement personnel at a major contracting facility. I can assure you that our job was to get the necessaryitems on contract as quickly and cost effectively as possible. Some of the specialists could get the job done and some just couldn”t hack it. The slackers got the ax while the producers got promotions. (Now here”s the part that really ties into DLZ”s comments.) Our procurement specialists didn”t have time or any interest in playing games with potential or existing contractors who thought they were doing themselves a favor by not providing needed information in a timely manner. When this happened we simply cut them out of competing for the current buy, and we didn”t waste time dealing with them on future buys. One guy was “sole-source” on an item and held us up for over a year before I got the file. I found a young, knowledgeable engineer to figure out how to change this from a “sole-source” to a “competitive” item, and we made the change. I put it back “on the street” for 30-days and got 16 goodproposals from new sourcesand one letter from a “cry baby.” This turned into one of the easiest purchases for several million dollars worth of needed supplies, and I developed multiple, quality suppliers for future buys, none of which was my “cry baby.”
Sothe moral tomy story is to help the IRS personnel bring your case to a quick and correct close by providing the necessary documentation they will need, and do it up front and quickly.
Jim2007-08-14 15:42, By: Jim, IP: [24.252.195.14]