Busted 72T

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L1: Busted 72TClient started a 72t in 2007 and has busted it in 2009. We have figured the taxes and penalties but how/whereis it reported on his tax return?2010-01-22 15:46, By: JD, IP: []
L2: Busted 72TGood question since the 5329 Instructions contain no directive on how to report all the plan income now subject to the penalty. However, the tax code says to report the penalty on the return for the year in which the plan is busted, so that will be 2009.Suggestion: Attach a 5329, and on line 1 enter. “see statement attached”. Then attach a statement listing each of the amounts taken in 2007, 08 and 09 and total them up. Indicate “72t plan modified in 2009”. Do not try to calculate the interest due, let the IRS figure it and bill client.Incidentally, the client may have some offsetting penalty exceptions for each of those years, and if so the statement could be expanded to show the dollars for which the new exception code would apply, and the net amount left in each year for which the 10% penalty is owed.There is also the Benz case to consider IF the client busted the plan by taking out extra amounts for which a higher education exception would apply. If that applies, it may be worth seeking a letter ruling allowing the plan to continue. Finally, client can start a new plan in 2010 if desired. Of course, care should be taken to prevent a re occurrence of a failed plan.2010-01-22 18:32, By: Alan S., IP: []

L2: Busted 72TBusted 72T… Take a look at IRS Form 8606and teh instructions2010-01-22 18:39, By: Gfw, IP: []

L3: Busted 72T8606? I can’t locate anything in the Inst for reporting a busted SEPP…..Seems like the subject should be in the 5329 Inst since the form deals with early withdrawal penalties among other things, but do not see anything there either.2010-01-23 05:13, By: Alan S., IP: []

L4: Busted 72TStart with 8606 – if it doesn’t apply (no non-deductible contributions), don’t use it. Then go to Publication 590 (as directed by the instructions for 8606) to the section “Is it Taxable?”. I’ll save you a little time – go to page 50, top right…’Recapture tax for changes in distribution method under equal payment exception.’ Then follow the instructions in Publication 590 to useIRS Form 5329 and report the transaction on IRS Form 5329.’Report the recapture tax and interest on line 4 of Form 5329. Attach an explanation to the form. Do not write the explanation next to the line or enter any amount for the recapture on lines 1 or 3 of the form’.The instructions for line 4 of 5329 state to report it on IRS Form 1040, line 58 or IRS Form 1040NR, line 54.It is never simple and the instructions are seldom in one place. Good Luck!BTW… There are also links to Pub 590 and the above forms by using the left menu option”Resources/Links”.2010-01-23 10:22, By: Gfw, IP: []