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Many Years of Required Minimum Distributions Missed for Both Husband and Wife

New Clients in 2013. The 84 year old couple previously used VITA (free tax service) to have their returns done.

It appears that after the 2009 RMD "holiday", the clients never took another RMD. (nearly $6000 each for each year) The 5498's are in the 2010 through 2013 tax folders, but neither the voluntary preparers, nor the local bank (where the IRA's are held) noticed the distributions were not being made.

The Husband always took care of finances, became ill with dementia in 2010, cancer in 2011, and died in 2013. In March of 2014, when I took the client and reviewed previous returns, I found the problem.

I had the client take ALL of the previous undistributed RMDs. She took the distributions for both her and her late husband for 2010, 2011, 2012, and 2013 in March and April of 2014. (over $45,000)

Now what do I do?

Do I file Amended Returns for each year and beg for penalty forgiveness? (about $22,500 of penalties)

Do I simply fill out the 5329 for each year, bundle them together and mail as one package begging for penalty relief?

P.S. Had the RMD been taken on time, there would be no tax due at all. The taxpayers did not have any other income to speak of. Now, distributions in 2014 of $45,000 plus the 2014 RMD of $15,500 total $60,000. The taxpayer is estimated to owe $13,700 in tax. This is really a sad deal!

Reply to
mammondee
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No amending is required. I would prepare a 5329 for each relevant year and complete Part VIII following the 5329 instructions for requesting a waiver for each year. Package them all together and attach a letter (I recommend two letters: One written and signed by the surviving spouse and one written by you confirming the facts.) that explains what transpired, the reasons for the lapses and what has been done to correct the omissions. Be sure to the include all relevant information in the letter that requests relief: deceased husband took care of finances, decedent ill with dementia and cancer, death of decedent, failures of trustee to notify and failures of voluntary preparers from (VITA, TCE or AARP Taxaide, etc) to inform survivor of obligation for MRDs, all RMDs taken in 2014, if taken timely, no tax would be due, estimated tax for

2014 will be $X. Mail the package to the IRS location where a paper 1040 would be mailed.
Reply to
Alan

I agree with your course of action but don't agree with your comment about volunteer preparers' failures. The volunteers assist the taxpayers with preparing *their* returns based on the documents they bring in, including previous years' returns (not always) and carry-forward data. If there were no 1099-Rs or year-end statements showing value reported to IRS, how would they know? Or are you suggesting that anyone over age

70.5 be asked if they have an IRA and took the RMD? Perhaps, but it's not a question on the IRS interview sheet as is "Did you receive any distributions from retirement accounts....)
Reply to
news

Two points:

  1. I am a volunteer instructor and preparer. I have the highest admiration for all the volunteers. One of the items I train the volunteers for is the RMD. I instruct each and everyone of them to ask every client who has achieved age 70 1/2 whether they have any retirement accounts. The birthdays are on every intake sheet.

  1. When asking for a waiver of the RMD penalty I have no qualms discussing the failure of any tax preparer to discuss RMDs with the client.

Reply to
Alan

My thought is that you should discuss RMD's with anyone over age 50, since they might well have inherited IRA's.

Reply to
Stuart A. Bronstein

Thank you for your clear and concise suggestions! What do you think about 2010. That return has met its stature of limitations as of April 15, 2014; However, the 2010 distribution was taken on 04/07/2014....just prior to the expiration of the return.

========================================= MODERATOR'S COMMENT: In the future please trim un-needed text including our own boilerplate. Thanks

Reply to
mammondee

The 5498's for each year were included in the tax packets that were returned to the client. The balance of each IRA and even the RMD amount was reported on each of these 5498's. This indicates to me the preparer had the information, but failed to council the client in any way.

Reply to
mammondee

I don't have a citation in front of me, but I am 99% sure that the statute is not applicable in this instance. The statute kicks in for the

50% penalty when you file the Form 5329.
Reply to
Alan

It has been my experience as a volunteer (19 years), that retiree clients almost never bring form 5498 with them. In fact, most of the time when I mention the 5498, there is a glazed look back. Say what?

Reply to
Alan

One can inherit an IRA at any age; so why limit it to age 50? I inherited an IRA at age 43 and have taken RMDs (1992 factor for non-spouse beneficiary) minus one for each year thereafter.

Reply to
news

Age 50 is an arbitrary number. Statistically people who are 50 and over are much more likely to have lost a parent than those under that age.

Reply to
Stuart A. Bronstein

Alan,

Followed this advise almost to a T! The taxpayer has received notice the penalties for each year have been waived.

Thanks so much for such excellent and concise advise.

--Marie

Reply to
mammondee

Thanks for letting us know what happened.

Reply to
Alan

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