multiple IRAS within 72t SEPP

L1: multiple IRAS within 72t SEPPI’m concerned about the discussion regarding 1099R coding and 5329s. The IRAs that I have aggregated to my SEPP universe are with several companies. Even though I am specifying that my distribution is for a 72t, they indicate they will code with a 1. Pub 590 says that Imust use the 5329 to explain that they are under a 72t SEPP. Has the IRS changed its mind without telling anyone?2006-02-13 11:39, By: squeaky, IP: [69.238.169.151]
L2: multiple IRAS within 72t SEPPIf your SEPP has multiple accounts with multiple custodians, none can possibley verify that the plan complies – at the beginning or as it runs which is why you will get the code of ‘1’ and have to file form 5329.2006-02-13 11:50, By: Gfw, IP: [172.16.1.75]

L2: multiple IRAS within 72t SEPPI understand the decision by the investment companies. I was just a little concerned about the posting that described the IRS not accepting a 5329. 2006-02-13 12:11, By: squeaky, IP: [69.238.169.151]

L2: multiple IRAS within 72t SEPPForm 5329 is always an option, but the IRS always has the right to ask for additional information – that’s why maintaining adequate plan documentation – a paper trail – is a must!
2006-02-13 12:26, By: gfw, IP: [172.16.1.75]

L2: multiple IRAS within 72t SEPPgot one of those paper trails, for sure. edginess about irs keeps me looking for holes in my plan. so far so good. thanks.2006-02-14 00:10, By: squeaky, IP: [69.238.169.151]

L2: multiple IRAS within 72t SEPPGFW- I have the same concern as Squeaky. If the IRS would not accept a 5329 (with documentation), and I know my custodian will not change my 1099 to a code 2, what is my recourse?This is what an earlier post said happened recently. Was that just because of his specific circumstance because the custodianchanged from a code 1 to 2?
Tim2006-02-14 09:19, By: Tim, IP: [146.122.201.145]

L2: multiple IRAS within 72t SEPPI think several folks are running down a tangent that leads to confusion on 1099R coding and use of Form 5329.
First, we would all like to get one 1099R coded as a “2” but for a host of reasons, we are all not going to get them. If you get a 1099R without a “2” and do nothing else, the IRS computer will simply compute the 10% surtax and send you a deficiency notice.
Enter Form 5329. This form essentially declares (in our context) that the 1099R is wrong and should have bewen coded as a “2” even though it was not. However, this is again a computer process with no human intervention. As a result, Form 5329 is always “accepted”; at least initially and no deficiency notice is issued in any automated fashion.
Now, let’s switch out of the realm of tax return filing & computer document matching into audit land and there are two basic types of audits: correspondence audits & compliance audits. Compliance audits are random and are of type where you get a letter that says: “show up at XXX place on YYY date with all of your records; we are going to look at everything”. Nothing I have seen would suggest that taxpayers using SEPP plans are any more or less likely to receive a complaince audit.
Correspondence audits are, to the best of our knowledge, computer selected; then get a manual glance and then the correspondence audit letter is sent. The correspondence audit process, in our case, says: (a) pay the 10% surtax, or (b) provide the evidence that the surtax does not apply. Under (b), the filing of Form 5329 with one’s tax return is nothing more than a taxpayer assertion, it is not proof. Now, the taxpayer needs to come up with SEPP plan design details, account statements, etc., etc.; e.g. all of the details.
Now, as the taxpayer, you either have: (1) no proof, (2) some proof, (3) all of the proof. In case (3), the IRS simply goes away and maybe you will get a “closure postcard”; often you get nothing. In cases (1) and (2) you have a problem; this is why it is so important to stay organized and fully documented.
Lastly, taxpayers can always seek out a competent professional to render an opinion on one’s SEPP plan design. This is always a good idea but only covers one of the two central questions that will be asked by the IRS; which are:
(1) Prove to use that your SEPP plan design is compliant; e.g. meets the standards of Revenue Ruling 2002-62 or Notice 89-25 as the case may be.
(2) Prove to us that you have executed correctly from plan inception-to-date.
Hope this helps.
TheBadger
wjstecker@wispertel.net
2006-02-14 09:48, By: TheBadger, IP: [66.250.23.25]

L2: multiple IRAS within 72t SEPPmost excellent!!2006-02-14 11:49, By: squeaky, IP: [69.238.169.151]

L2: multiple IRAS within 72t SEPPToo premature yet to worry, but I suppose it is possible that the computer selection criteria for the correspondence audits could be changed, and it is also possible that 2004 1099R forms ended up with a scarcity of “2” codes because of the IRS’ own 1099R instructions gaffe. The combination of these two variables just could result in more taxpayers scrambling to put together their documentation.
It’s always easier to to this up front when your assumptions are clear.2006-02-14 17:45, By: Alan S., IP: [24.116.165.157]