Schwab rep told me this today

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L1: Schwab rep told me this todayHello…I have been getting the wonderful code 2 for my SEPP for previous years, and now starting this year, when I did my dist. I had no choice but to get the code 1. I called Schwab, and was informed that the IRS is requesting all firms that had been giving a code 2 to give the code 1,thusrequiringme use the form 5329 ( which I have not been doing previously). My concern, is that this will put my return with the new code under more scrutiny just because it changed from 2 to 1….am I being paranoid?? Also does professional software see that I am under 591/2 and ask the preparer if theywant/need to use the 5329? Sorta like a safety net for preparers not in the know about SEPPS.2016-01-04 15:45, By: TheresaM, IP: []
L2: Schwab rep told me this todayYou are paranoid. The IRS has reduced personnel so drastically that they might audit less than 1% of individual returns, and they will be concentrating mostly on high income taxpayers, which is where they can get more additional taxes.
The IRS has never cared whether the code was a 1 or a 2. The IRS computers never compare any tax year with the previous year.
Unless you are a tax practitioner, I doubt if you are using “professional tax software”. The consumer tax software programs vary as to the extent of the questions or diagnosis imbedded in their programs. However, the tax software will check your age, and AUTOMATICALLY prepare the 10% penalty, unless the tax preparer indicates the applicable code for ANY of the exceptions, not just the SEPP 72-T. If you are using a tax practitioner, hopefully he is professional enough to prepare a 5329 regardless if the software alerts him, or not. You should ask him if he knows the nuances of SEPP 72-T plans. If not, then change tax practitioners.2016-01-04 16:11, By: dlzallestaxes, IP: []

L3: Schwab rep told me this todayThankyou so much the insight. So, if the IRS computers do not compare the current tax year with the previous tax year like you inform, how do they know you are doing equal payments every year under the SEPP? Or do they just not compare codes, but do check amounts?2016-01-04 17:22, By: TMorgan, IP: []

L4: Schwab rep told me this todayThe IRS does not know if the amounts you withdraw are the same each year. BUT, if you are audited, the retroactive 10% penalty from inception are a great deterrent for anyone trying to get away with taking out more than they are allowed to take.
Similarly, the IRS does not know if you did not report business income if no one reported payments to you on form 1099-MISC or 1099-K, any more than the IRS would check why you didn’t report investment income this year from brokers or banks that you had last year, if it weren’t for the 1099-INT/DIV/B forms that are submitted to them.2016-01-04 17:31, By: dlzallestaxes, IP: []

L5: Schwab rep told me this todayThankyou! Learned something today. It amazes me that they allow you to do a SEPP, but don’t check that your payments are exactly equal. I dokeep very careful records on this just in case.2016-01-04 17:41, By: TMorgan, IP: []

L6: Schwab rep told me this todayDon’t get me started about the IRS, its procedures, and inefficiencies. I have been a liaison for the accounting profession in PA with the IRS (and PA, Phila, and local taxing agencies) for over 25 years, and you would be amazed how bad they all are in these regards. They drive tax practitioners and taxpayers crazy.2016-01-04 17:45, By: dlzallestaxes, IP: []

L7: Schwab rep told me this todayTo add to what dlz has posted, Schwab has been one of the few custodians that have been providing the code 2 exception in recent years. It is not clear what “underwriting” of the plan Schwab has done in the past to justify their use of Code 2, or whether the IRS has actually issued a directive to cease providing code 2 or not. But if the IRS has issued such a directive, then there are only going to be a few more 5329 forms filed since most SEPP participants have had to file the 5329 all along. While I understand the logic to your question when the coding changes, but the IRS does not exercise such logic when reviewing returns as dlz has pointed out. So don’t worry about the coding change, just be sure your annual SEPP distribution is correct.2016-01-05 16:33, By: Alan S, IP: []

L8: Schwab rep told me this todayP.S. You can download the 2015 instructions for form 1099-R at to see this spelled out. This list-serve won’t accept my pasting of that information.2016-01-05 16:39, By: dlzallestaxes, IP: []

L9: Schwab rep told me this todayTurboTax will ask you about exemptions if you enter/download a 1099-r with code 1 in box 72016-01-05 17:27, By: bob85364, IP: []