IRS Audit

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L1: IRS AuditWe just received that dreaded IRS Examination letter that says that we owe the 10% or tosend in documentation proving that we don’t. We are 2 1/2 yrs. into SEPP. I composed a letter saying that we qualify for the exception detailing what attachments are being enclosed. Statement that Vanguard won’t indicate in box 7 on 1099R that an exception applies. I am enclosing copy of our tax return which includes the 5329 filed, copy of worksheet used when the SEPP was first calculated, IRA statement of the balance used, application sent to Vanguardto start distributions,end of year statements showing the equal monthly payments made equal the required annual amount and copy of the info Vanguard gave us with instructions for setting up SEPP. My question is, am I missing something or is this overkill? I’m sending about 50 pages. I know that Badger says to communicate with them in writing, not on the phone so I don’t want to call but the fear of doing something wrong is nerve racking.2009-02-05 15:20, By: Duck, IP: []
L2: IRS AuditI cringe to think that your IRS inquiry is indicative that all Vanguard, and possibly other custodian 1099R forms coded early will result in such an inquiry. With the IRS you never know if something like this is totally random or reflective of some new policy. If it’s a new policy, it will be a tremendous waste of IRS and taxpayer resources because the IRS needs to understand that the vast majority of IRA custodians will no longer provide the exception code even when they are sure the plan is in compliance.With respect to your response, I have no opinion whether you are providing them with too much or not. My inclination is provide them with everything they will need so I do not have to wait for the next question. But there are others that feel that “less equals more” and to not try to anticipate their next question. In that vein you probably do not need to send the entire return, just a copy of the 5329 and the calculations that agree with the 1099R gross distribution, since this should be all they really need. The Vanguard forms are probably superfluous.2009-02-05 18:45, By: Alan S., IP: []

L3: IRS AuditI’m not sure I got an examination letter, but I was also questioned by the IRS about my current SEPP. {{ I have 3 of them }}I just sent a two-pagecover letter, plus a one-page description of eachSEPP plan — start date, yearly amount withdrawn (same each year), interest rate used, month & year of interest rate, starting account balance, and the dates of all withdrawals.My response seemed to satisfy them. In future tax returns, I plan to include the SEPP plan description (updated with yearly withdrawal information) to preclude further questions2009-02-05 20:14, By: session52, IP: []

L4: IRS AuditThanks for the responses. The letter just states that since Vanguard didn’t indicate an exception that we owe more taxand if we disagreethat we can send in documentation if we fall under any of the exceptions. They don’t even mention our form 5329 that we filed with our return. Session, do you mind if I ask did they respond to let you know that everything was ok? Do you plan to attach the info to your 1040 on future tax returns with form 5329?2009-02-05 21:20, By: Duck, IP: []

L5: IRS AuditThe IRS responded to my own response with a letterstating that no extra tax was due (no 10% penalty).I’ll just attach my SEPP documents to the end of my tax return, which I usually send by snail mail (hard copy).2009-02-06 07:13, By: session52, IP: []

L6: IRS AuditThanks. I’ll be mailing it back to them this morning so it’s good to know that they should respond back. Do you remember about how long it took to hear back from them?2009-02-06 11:35, By: Duck, IP: []

L3: IRS AuditI am 6 years into a 72T and I got the same audit letter this year for my 2008 distribution. Fidelity my custodian quit coding the 1099-R for the exception last year and it was the first time I had to complete the 5329 form. Best Guess this is happening to everyone in the same situation where the IRA custodian refuses to complete the exception. What exactly do we pay the custodians for ? Someone remind me.2009-04-07 02:55, By: floridaflamingo, IP: []

L2: IRS AuditI received the same notice not only for 2007 but also 2004 taxes. I sent them the necessary paperwork for 2004 taxes previously and now I am getting it again for 2007 taxes. I also am sending all of the documentation for my 72T. I am faxing the paperwork as I did before.
It helped before but I do not know why this is continuing. I will be 60 this year so maybe that will stop it. glad to know I am not being singled out but it is costing lots of tax dollars and stress on the people who have to prove it.
Thanks for your help as well.2009-03-23 19:35, By: d672, IP: []

L3: IRS AuditJust an update. We received a response letter back from IRS today informing us that they were cancelling the tax change and that they would return our documents that we sent in a different mailing. We may have sent too much info but it seemed to do the trick. I was pleased and relieved that they responded and that we were ok. Thanks for all of your help here.2009-04-06 21:16, By: Duck, IP: []

L4: IRS AuditThank you for taking the time to post the outcome. Sometimes the minimal type response works best, other times flooding them with so much information they do not want to review works best.
But I do wonder if the IRS is now inclined to doubt the accuracy of the 5329 forms. If so, we are in for a massive waste of taxpayer time and money, and it would behoove the IRS and IRA custodians to get this issue worked out and their heads out of the sand.2009-04-08 00:46, By: Alan S., IP: []

L4: IRS AuditIt’sgood news that they accepted the records. I will plan for the worst and expect an inquiry at some point in time (my plan will run for 8 years). I plan on already having aplan documentation/explanation letter written and sitting in a file, along with the required supporting documents, all ready to be mailed off to them. All this I’ve learned from this forum.

2009-04-08 13:48, By: mikex, IP: []