IRS 5329 form

L1: IRS 5329 formMy finanancisl institution that manages my IRa recently notified me that they will not be providing the indicator in box 7 of the 1099-R. They informed me I needed to file an IRS 5329 form.
Why would they do this was there some change in the IRS code requiringIRA holders to do it or does this just seem to be a reduction in service to their customers?
I have a 72T and need to know as they will not provide it for the 2006 tax year and filing is coming up soon.
Your site has been a great help in the past. Thank you for the great information.

2006-12-17 04:15, By: Floridaflamingo, IP: [66.82.9.86]

L2: IRS 5329 formFloridaflamingo,
A good question that (hopefully) one of theexperts can address. Just for the record, I also received a similar notice; however, mine differed; in that, my financial institution stated the following: Effective January 1, 2007, all SEPP distributions taken from your IRA will be reported to the IRS as “early distribution, no known exception applies” (coded ”1” in box 7 of IRS Form 1099R).
My imnterpretation of the above would be that my 1099R code will be reported as a”2” for the 2006 filing year (e.g., this year”s return); however, the are giving notice that the code will be changed to a ”1” for the 2007 filing year (e.g., next year).
Good luck,
gus2006-12-17 06:35, By: gus, IP: [70.110.184.3]

L2: IRS 5329 formGus – just in case, be ready to file 5329 for the 2006 tax year – they may very well mean that it effective for forms that will be sent in 2007.
If you are looking for reasons, merely look through the forum and some of the previous posts – it was the subject of several discussions. It isn”t that anything has changed – it really hasn”t, but it may very well have to do with a lack of guidance to a trustee/custodian from the IRS.2006-12-17 06:46, By: Gfw, IP: [24.148.85.129]

L2: IRS 5329 formGfw,
Thanks for thecaution; however, if that turns out to be the case, then I”ll be a little bit disgruntled with my financial institutions choice of wording. With that said, I”ll be on the phone at 9am on Monday to get a clarification and I”ll update this thread with the results of my inquiry.
Thanks again,
gus2006-12-17 06:54, By: gus, IP: [70.110.184.3]

L2: IRS 5329 formI am not about to come to the defense of trustees; however, there has long been confusion about the coding of 1099R”s in at least two respects:
1. A year or two ago, the IRS revised, re-revised and then re-re-revised 1099R coding rules particularly with respect to code “2”; e.g. SEPP plans. This confused everyone.
2. Probably more importantly, there has never been any guidance that I have seen to guide trustees as to when they should code a 1099R as a “1” and when they should code it as a “2”. Is the taxapayer”s claim that it should be a “2” sufficient or does the trustee owe some duty or diligence before complying with the taxpayer”s request?
As a result of the above, trustees are pretty much in “no-man”s land” and don”t really know what to do. Default response — protect thy posterior and code all 1099Rs as a “1”.
That said, the 5329 is not difficult to complete and takes about 1 – 2 minutes total. In addition, Turbotax questions the taxpayer correctly on this issue and does properly create the 5329 & I would presume TaxCut and others do as well. Lastly, there is no evidence that completing a 5329 because you got a 1099R with a reason code of “1” somehow increases one”s likelihood of being audited.
TheBadger
wjstecker@wispertel.net

2006-12-17 06:54, By: TheBadger, IP: [72.42.67.105]

L2: IRS 5329 formI know there has been previous discussions regarding this matter but I thought you might be interested in my experience.
In July 2006 I received a noticed from the IRS that I needed to pay a 10% penalty on my 2004 tax return. I started my SEPP in 2002. I found out that Vanguard had coded my 2002 and 2003 distributions with a 2. Beginning in 2004Vanguard started coding SEPP distributions with a 1 – when I called them about it they said they were instructed by the IRS to begin doing it this way . My accountant wrote a very clear and concise letter explaining I was takng a SEPP and provided my paper work (which I might add my accountant said was better than what he usually prepares) I received a letter back from the Audit group saying I didn”t provide the proper documents and I still needed to pay the 10% penalty with interest. My accountant made several phone calls and provided more info to them – he had to provide the Form 5329 since theycouldn”t access them (don”t know why).In October I received a noticed from the IRS saying I hadto pay a 10%penalty on my 2005 return.
My accountant then contacted the “Taxpayer Advocate Group” – I am not sure if this is the exact name but something close. After sending them numerous documents, which we had already sent the Audit group, and making several phone calls, he received today, Dec 21 2006 a call from them saying everything is in order and they would notify the Audit group and I should receive by Jan 15 2007 a letter notify me all is OK.
I have left outsome details but I think you get the drift – long and painful.
2006-12-21 20:24, By: dogtown, IP: [70.140.225.13]