MRD Not Taken In Year Of Death, but Bank Reports That It Was....Is this Legal?

1. I am not aware of anything in the code that allows for a retroactive correction to a missed MRD.
2. I am aware that banks routinely do this under the following circumstance: It is before the filing deadline of April 15th and the trustee was at fault.

By making the corrective distribution retroactive, the trustee eliminates the requirement for the IRA owner to file form 5329 for the missed MRD and request relief from the 50% penalty.

I really need some guidance. This client and her late husband have not taken RMD since 2008 (some $60K = penalties of about $30K). After April 15, I will amend past returns, file the 5239s and beg for penalty relief.

However, for 2013's return, I (as the preparer) am well aware the distribution was taken in 2014. I am the one that found the oversights, and told the taxpayer to go to the bank and take the distribution. I'm not sure how to file the return, cover myself, and prevent a "non-match" for the 2013 1099R.

The last thing I want to do is report the distribution in 2014 (even though the 1099R shows 2013) and submit the taxpayer to penalty if there is some provision that allows the custodian/administrators to backdate the year of death RMD.

I'm confused. Here is what you said in the original post:

"When I pointed out the missing MRD, the bank admitted an error, took the distribution from the surviving spouse's IRA and deposited it into her money market account on 03-27-2014."

Now you say:

"I am the one that found the oversights, and told the taxpayer to go to the bank and take the distribution."

How many "actual" distributions in 2014 were there? The one the bank took and the one the surviving spouse took makes two. Or was there just one and the bank coded it as 2013?

The 2013 MRD is now taken care of. It gets included in the 2013 final tax return for the decedent. If you are now saying that there was another distribution in 2014 that you were going to treat as the late

2013 MRD and ask for relief, then the following options exist assuming the surviving spouse is not required to take minimum distributions:

1. If within 60 days of distribution, then put it back into the account.

1. Treat it for what it is... a taxable distribution for 2014.
2. Go to the trustee and explain what happened and ask for the trustee to redeposit the funds and reverse the distribution (the one that the survivor took) even though the 60 days have passed. If the trustee can retro the MRD then they certainly should be able to cook the books for this.

I am very sorry I have not make myself clear....but I'm not sure I could explain just how MESSED UP the bank has gotten things!....When the client first came to me (a week ago) and I was going through her source documents, I saw a 1099R in HIS name but HER social security number, showing HIS IRA ACCOUNT BALANCE of $150,000 as distributed AND taxable with a distribution code of 4....There was not one singe box on the 1099R that was correct.

She is an immaculate record keeper, and I could see HIS IRA account balance had been rolled over into her existing IRA, and should not be taxable....(or even reportable for that matter). I told her to go to the bank and get them to correct (through reversal) this erroneous 1099R. I also explained to her the deceased's MRD had not been taken in 2013, but the bank did take HERS when they rolled HIS IRA account over to her existing IRA account in November of 2013.

When she went to the bank the young lady that helped her (both in November and on this day) said "that was my fault", and she transferred HIS RMD into her Money Market account and issued the surviving spouse a new 1099R. However this NEW 1099R was marked "corrected" for 2013, in HIS name HIS SS#, for the correct (RMD) amount and code 7. When I called the bank quizzing the validity of this new 1099R, they told me they "backdated the distribution to 12/30/2013 so everything is just fine. This is the way it is done...they do it all the time."!

Now mind you, the taxpayer died in March, 2013. His IRA account was transferred to his surviving spouse's existing IRA in November of 2013. The bank did NOT distribute HIS year of death MRD in 2013, but they did distribute HERS! Mistake was found in my office (because of bad 1099R) and actual RMD taken in March 2014. New 1099R does not correct ANYTHING and muddies the water even further.

So far their has only been the one distribution in 2014 for the amount of the deceased's 2013 RMD, taken March 2014. Her distribution was taken in November, 2013....and is the ONLY thing that has been done correctly since 2008!

You see, this couple is/was 84 years old. They have not taken ANY RMD's (except the two explained in previous paragraph) since 2008....In 2009, he got cancer, dementia, etc...and he was the "financial brains". The amounts of undistributed RMDs add to about $65,000 = about $32,500 in penalties.

Even though I know it was really taken in March of 2014? I have lots of explaining ahead of me in an attempt to abate the $32,500 in penalties....I want everything to be exactly as is should be.

Let's start with what should have happened for married taxpayers both of whom needed to take an RMD.

A distribution was made to a beneficiary (surviving spouse) in 2013. The amount should have been the balance in the decedent's account less his RMD. The 1099-R should have been issued in the survivor's name (Wife) and her SS#. Box 1 would have the gross amount. Box 2a should have a zero (not an empty box). Box 2b should have been unchecked. Box 7 should have been coded 4G. This tells the IRS that the owner has died. The tax-free amount was rolled over into the wife's IRA. A 1099-R should have been issued to the wife for her RMD. A 1099-R should have been issued in the decedent's name and SS# for his RMD. Both would have been taxable with 7 in Box 7. So... there should have been 3 1099-Rs issued. One in the decedent's name and SS# for his RMD: Taxable. One in the survivor's (wife) name and SS# for her RMD: Taxable. Another one in the survivor's name and SS# for the rollover: Not taxable.

I still can not tell from your revised post whether there were three or only two issued. I'm guessing three as you did say her RMD was done correctly. I also can not tell how the one that reflected the distribution ($150K his name, her SS#) to the beneficiary was coded as you merely said it was taxable and should not have been issued. It should have been issued as I explained above. That said... if there is a zero in Box 2a and Box 2b is unchecked, it is not taxable even if the G is not present. You would merely report the gross amount and taxable of zero. You seem to have on in his name and SS# for the RMD.

So... it appears you have two 1099-Rs with correct information for the RMD to each spouse. You have a 1099-R for the beneficiary distribution that was not done correctly but may be usable if it is coded as not taxable.

Personally, I would have the trustee issue a corrected 1099-R for the beneficiary distribution that reflected the proper amount of the rollover ($150K less the RMD)in Box 1, in her name and SS#, Box 2a with a zero; box 2b unchecked and the proper codes in Box 7.