Filing Form 5329 for SEPP plus additional exceptions

You are here:
< Back

L1: Filing Form 5329 for SEPP plus additional exceptionsI’ve searched this site plus several others and have found conflicting information about filing Form 5329 when multiple exceptions apply. Plus, I really want to e-file to minimize the wait time until I receive my refund.
Background: I have an active SEPP and received my regular SEPP distribution in 2010. In addition, I withdrew some money from an IRA not included in the SEPP balance calculation to cover medical expenses over 7.5% of AGI. (I am 56.)
In looking at the instructions for Form 5329, it seems pretty clear that the IRS only expects one 5329 per taxpayer, not one 5329 per exception. [Bill Stecker suggested submitting a Form 5329 per exception in a Jan 2005 post.] Most posts on this site recommend filing a single Form 5329 with a code of “12”. The 5329 instructions define code “12” as, “Other (see Other, below). Also, enter this code if more than one exception applies.” So, I am convinced that I should file Form 5329 with a code of “12”.
The problem I’m facing is the limitations in TurboTax when e-filing. There is no way to attach an explanation for Form 5329 to an e-filed return in TT … and I’ve contacted TT Support to confirm this. So, I’m left wondering what the consequences would be of filing Form 5329 using code “12” with no explanation.
The IRS instructions for Form 5329 say nothing about providing an explanation with Form 5329 when using code “12”. In fact, several other web sites say that it’s pointless to include an explanation whether you’re filing by mail or e-filing. Their arguments tend to go like this:
1) The IRS computer data input doesn’t provide a way to link an explanation to Form 5329, whether you’re e-filing or a person is inputting your return.
2) Returns are selected for audit based on the information stored in the computer systems and your explanation for the “12” won’t be a factor in selecting the return for an audit.
3) Auditors themselves aren’t going to look at your explanation for the “12” and won’t use it in evaluating your return for an audit. (Certainly, posts on this site indicate that most auditors are ignorant of anything having to do with 72(t) and that once you are in the audit process that it takes significant work to convice anyone that you are doing things correctly.)
So, I find myself wavering between two choices: 1) e-filing my return with a “12” and no explanation, or 2) e-filing my return with a code “2”, paying the 10% penalty ($430) on the medical withdrawal, and filing an amended paper return later with a 5329 coded as “12” with an explanation. If the second approach runs afoul of any IRS rules regarding filing an accurate/honest return, I wouldn’t want to do it. I’m thinking now that it probably does.
Any thoughts would be greatly appreciated.2011-01-25 02:51, By: knupug, IP: [216.218.240.46]

L2: Filing Form 5329 for SEPP plus additional exceptionsRegardless of whether you e-file or paper file, you cannot file your return until 2/14 because the IRS’ computers will not be finished programming until that announced date.
I have not had the situation with multiple exceptions. However, since we know that IRS agents do not read the attachments, and the computers cannot read, yet, I think that you have abetter chance for your return to be processed correctly, and get your refund sooner, if you file multiple 5329s for each different exception. I think that their computers can handle 1 form 5329 for each exception better than the code 12 approach.2011-01-25 03:53, By: dlzallestaxes, IP: [96.227.217.194]

L3: Filing Form 5329 for SEPP plus additional exceptionsRegardless of whether you e-file or paper file, you cannot file your return until 2/14 because the IRS’ computers will not be finished programming until that announced date.
That’s not quite correct. The IRS won’t start processing returns until then. But, they’re going to process them in the order received. So, the earlier a return is submitted, the earlier the refund will become available.2011-01-25 05:56, By: knupug, IP: [216.218.240.46]

L4: Filing Form 5329 for SEPP plus additional exceptionsMy understanding is that they will not even accept any e-filed returns until 2/15. They have issued special permission to the e-processors to “stack” until 2/14. Usually they are required to submit them within 24 hours, but IRS is incapable of processing them initially to even accept them.
As far as paper filing, IRS is known to have lost returns when they are in a normal processing mode. I would not want my return with millions of others waiting until 2/14 to be taken out of big bins, rather than the routine processing procedures that they are used to.
It’s your choice/decision. I’m only telling you that most, if not all, professional preparers are waiting until 2/14.2011-01-25 14:32, By: dlzallestaxes, IP: [96.227.217.194]

L5: Filing Form 5329 for SEPP plus additional exceptionsThanks for the clarification.2011-01-25 17:37, By: knupug, IP: [216.218.240.46]