Under annual distribution
L1: Under annual distribution
This post relates to a recent post titled “72t error” which described informal IRS positions relating to over and under distribution amounts.
Since a similar problem happened to me in 2010 I want to get your advice on what more I might need to do regarding informing the IRS.
My first distribution was Oct 10, 2008 when I was 57 yrs old. DOB is May 15, 1951. I took a full distribution of $60,000 in 2008, 2009. In Dec 2010 custodian failed to distribute my monthly amount. This wasn’t noticed until mid-January 2011 when the 1099R
arrived. They had distributed only $55,000 for 2010.
Custodian codes 1099R with code “2”. Therefore no form 5329 has been required.
Custodian has agreed in writing, they sent me a letter, that it was their fault and will therefore pay any penalties with interest. The custodian is under the impression that the IRS will waive the penalty because this same situation happens frequently with
seniors over 701/2 who don’t receive the correct RMD due to custodian error.
In filing my taxes I wrote a letter explaining the situation and requesting the penalty to be waived. I included a copy of the custodian’s letter.
My taxes were filed by 4/15/2011 and to date I have heard nothing from the IRS about this situation.
Should I take any other steps at this time?
thanks for your help.
2011-08-05 01:06, By: bobmac, IP: [188.8.131.52]
L2: Under annual distribution
Here is what I would have done :
1. Tell, don’t ask, the broker to designate the Jan or Feb 2011 distribution as the omitted 12/2010 distribution. This will show that the problem was corrected as soon as noticed.
2. Take 12 additional monthly distributions for 2011 annual total of $ 65,000.
3. Amend 2010 tax return to report $ 60,000, and attach explanation that Dec 2010 payment was omitted by the broker, that you took it in Jan when you noticed it.
4. Have broker file corrected 1099-R to reflect $ 60,000 for 2010.
5. For 2011 broker might give you a 1099-R for $ 65,000. If so, ask them to correct it to $ 60,000. If they do not, then report the $ 65,000 per the 1099-R, and then show ($ 5,000) on line 21 as ” 2010 IRA distribution received in Jan 2011 but reported on
2010 tax return”.
Unfortunately, the broker did not respond professionally to handle the situation this way initially. So, see if they will now do the above steps at this time. Hopefully the IRS will waive the penalty per your request, but all of these stepstaken now will
hopefully persuade them that you have done everything to report the distributions as they were supposed to have been done. If they reject your request, have your tax preparer or the broker’slegal department contact the “PRACTITIONER PRIORITY SERVICE” or
“TAXPAYER ADVOCACY SERVICE”under form 2848 “IRS POWER OF ATTORNEY” to waive the penalty, and reestablish your “busted” SEPP 72-T.
Notify the broker, in writing, that they are responsible for the $ 18,000 penalty ( $ 180,000 @ 10%) if this issue is not resolved favorably.
Also, get them to respond in writing if this was a computer error or a people error, and that the responsible person should be reprimanded accordingly.
2011-08-05 05:53, By: dlzallestaxes, IP: [184.108.40.206]