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!
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.
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....)
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.
2. 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.
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
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.
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?