“Late” 72(t) Distribution

L1: “Late” 72(t) DistributionI submittedtwo separate72(t) distributions for my client in Dec 2006. I submit the paperwork to my broker-dealer who in turns submits to NFS (Fidelity). In the submission from broker-dealer to Fidelity an admin error occured (neither will take full resp but I believe the broker dealer was in error – I submitted 8 pages to them and they only forwarded along 8 as one of the pages was repetitive – yet in the end necessary) and only one of the distributions was made. Fidelity rejected the second distribution due to the missing attachment, which was resubmitted but did not take place until Jan 2007.
I have seen PLR”s on this website that are very similar but this process is expensive (although I believe the broker-dealer should pay). If there any other method of fixing this for my client? I was looking at IRS Publication 590 “Request to Excuse Tax” using a form 5498 (although the publication only refers to RMD”s from an IRA).
Any thoughts would be appreciated.2007-02-08 10:27, By: sb, IP: [128.62.207.190]

L2: “Late” 72(t) DistributionThere is no applicability of the Form 5329 excess accumulation penalty to 72t failures. I suppose these two situations developed differently because of the difference in penalty (50% vrs 10% ) and also because of the vigilance of IRS tracking of the requirements of RMDs. As notifications of RMD requirements are perfected, the excess accumulation leniency will undoubedly disappear.
However, this is yet another classic case of the risk of December distributions, either for RMDs or 72t requirements. Custodians are buried with year end transactions, holidays etc and no time is left to follow up and correct errors. Even montly distributions should not be scheduled for later than the 10th of December. In this case, a detailed facts and circumstances analysis needs to be made to determine how much of the penalty can be recovered. The cost of a PLR request should be balanced against the dollars of penalty plus interest you have here. The longer into the term of the plan, the larger the penalty. Having two distributions in December is somewhat unusual unless an adjustment is being made for earlier in the year, but given more details we could attempt to see what damage control could be attained from here.
2007-02-08 19:42, By: Alan S., IP: [24.116.66.98]

L2: “Late” 72(t) DistributionHello sb:
I suspect that the cost fo a PLR, approximating $12,000 or more is not worth it.
As an alternative, and this is extremely fact and document dependent; you could pretend as if the distribution was timely made and alert the taxpayer”s tax return.
TheBadger
wjstecker@wispertel.net

2007-02-08 20:36, By: TheBadger, IP: [72.42.67.22]