Saturday's Wall St. Journal has an interestin article on how we can expect a a large effort by the IRS to go after uncollected penalties ($286M in 2006 and 2007) on the $4.9T in IRA assets. The AICPA refers to this as "low hanging fruit" especially as the government needs money.
Weekend Investor, page B7, "IRA Rules Get Trickier".
I read this article earlier today. Your title "IRS Cracking Down On Retirement Account Errors" is far more accurate than the one used by WSJ. The rules haven't changed, they are just going to be enforced more strictly.
The article says
" The couple had to file seven years of amended returns, withdraw the contributions and pay thousands of dollars in penalties and interest. "
Isn't the statute of limitations 3 years, unless there is fraud? Later on the article says "because there's no statute of limitations on those 50% penalties". Is there some statute I don't know about?
contributions and pay thousands of dollars in penalties and interest.
article says "because there's no statute of limitations on those 50% penalties". Is there some statute I don't know about?
There are 2 issues here. The 7 year amended couple had an excess deposit. 6% penalty. That penalty is not a flat 6%, it's 6%/yr, which does make it carry forward, and the 3 year elapsed time doesn't negate it.
The 50% remark is accurate, but it look like a non-sequitor in the article, as it comes right after the 6% issue.
But similar to the 6%, the unpaid penalty is carried forward until the issue is corrected.
On this topic - for my 80+ Mother in law, each year I help her with her IRAs, converting to Roth to "top off" her 15% bracket. Each March, we recharacterize to put her taxable income right at the 15/25% line.
The broker sends her an RMD notice based on the 12/31 balance (obviously), and as the recharacterized funds need to be added back in the calculation, I emailed the broker to update the RMD figure. (Why? because even though I can do the math, I wanted a paper trail, in case I am run over by a bus, or meet my maker for whatever reason.)
The broker wrote back that 2012 transactions do not affect the RMD. To close this story, the person in their retirement department 800# was mortified to hear this was the information I was given. A new RMD figure was calculated and my MIL has that in her file. My point, the calculation is the responsibility of the taxpayer, the broker generated numbers are a courtesy. The rules are complex enough that the layperson is at risk even when relying on "pros." The story is very timely.
The IRS is open to waiving the 50%, but I don't know that relying on broker advice is one reason they'd accept so readily.
On 6/24/2012 11:48 AM, JoeTaxpayer wrote:[snip]
If you withdraw the amount recommended by your trustee and that amount turns out to be too low, the IRS will wave the penalty as long as you withdraw the amount required upon learning you were short.
contributions and pay thousands of dollars in penalties and interest.
article says "because there's no statute of limitations on those 50% penalties". Is there some statute I don't know about?
While we commonly call all the IRA penalties penalties, they're actually excise taxes reported on Form 5329. No 5329, no statute clock running.
Phil Marti VITA/TCE Volunteer Clarksburg, MD
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