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BHoffman

Missed RMD and very stinky paperwork

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Ugh.  The heavy smoker sent her paperwork in.  I have looked through it and put in all in a ziploc.  Phew!

I noticed that she missed taking a 2016 RMD in the amount of $494 from an Ameriprise IRA account and advised her to take it now and keep a copy of the payment she receives.  I'm wondering whether to go the whole form 5329 route or wait and see if IRS sends a notice?  

If I should send in the form 5329, can you advise on "reasonable cause"?  She explained her "reasonable cause" as confusion since she received dividend checks from a separate Ameriprise stock account and thought they were the required min. distributions.  I don't know if IRS is going to complicate things unless the "reasonable cause" is something very common and very typical, like her elderly husband's health issues.  Are there any other very common and very typical "reasonable cause" explanations for missed RMDs that I could ask her about?

Thanks for any advice.

 

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On ‎8‎/‎4‎/‎2017 at 2:40 PM, BHoffman said:

Ugh.  The heavy smoker sent her paperwork in.  I have looked through it and put in all in a ziploc.  Phew!

I noticed that she missed taking a 2016 RMD in the amount of $494 from an Ameriprise IRA account and advised her to take it now and keep a copy of the payment she receives.  I'm wondering whether to go the whole form 5329 route or wait and see if IRS sends a notice?  

If I should send in the form 5329, can you advise on "reasonable cause"?  She explained her "reasonable cause" as confusion since she received dividend checks from a separate Ameriprise stock account and thought they were the required min. distributions.  I don't know if IRS is going to complicate things unless the "reasonable cause" is something very common and very typical, like her elderly husband's health issues.  Are there any other very common and very typical "reasonable cause" explanations for missed RMDs that I could ask her about?

Thanks for any advice.

 

There may not be any point to this reply (I can't think of any "very common and very typical" reasonable cause other than "health") but since there are no other cents worth submitted, here's my two. 

First...what's wrong with using the elderly husband's poor health as a cause? It's not uncommon among elderly people for the "man of the house" to handle the finances.  She could plausibly say he usually handled business but was unable to do it this year and she was distracted, exhausted, and traumatized from the caring for her elderly husband's extensive medical needs (you can exaggerate a little bit - I once expanded a cold to pneumonia).  IRS is aware that health issues generally affect everybody in the house no matter who is sick.  A few years ago I got a penalty abated for a lady: husband died, left $50K in IRA, clueless son withdrew it all, gave to sick mom, they told me long after 60 days, I attached a sheaf of medical bills, a heart-wrenching letter, and the penalty never materialized.       

A couple of notes: On $494 you're really not talking about any money.  Is it worth a 5329 (does she want it fixed now-will she pay you)? IRS will eventually get around to it - I once left off a small Wells Fargo withdrawal and they billed me. Downside is you have to wait a year and a half for it.

Tobacco fumes? I've got a client I'll swap with you.  Both he and his wife smoke like chimneys.  They drive to Missouri (low tobacco-tax) once a month, buy a large can of loose tobacco, break out their cigarette-rolling machine on the kitchen table, and whip up a 30-day supply of coffin nails. The aroma from their annual visit would drop an ox.  Can't blame him too much, though - claims he had to give up whiskey and women, so what's left?

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my parents both quit smoking after each had a heart attack and about 8 years afterwards they packed up to move to a smaller home. They opened boxes in the back of the basement that hadn't been opened in 20+ years including a box with my childhood teddy bear and were heartbroken to experience the smell. That's when it dawned on them for the first time, they were really stinky for 40+ years. I have only one client who stinks from smoking. Every year he sits across from me and I can smell the stale smoke coming off of his clothes. It's always odd because he's in my office first thing in the morning every time. I'm guessing he sits in the parking lot finishing his cigarette because he only lives 1/2 miles away.

As for the delayed distribution - I'd have the IRS bill them for such a small amount.

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Before I complete the return, I would insist that the client contact Ameriprise and take the RMD for not only last year, but take it for 2017 as well. AND, request that Ameriprise automatically program for an RMD every year from now on so the client wouldn't have an excuse to overlook it. THEN once that's done, I would prepare the form (I forget - either 5329 or 8606) to request the 50% waiver and note in the explanation that the RMD for prior year was taken prior to submission of the tax return.

I have that type issue with a long time client who is now age 85 and widowed. While she is coherent enough to discuss tax issues, I need to work through her granddaughter (an authorization has been given to me) to execute transactions for tax filings.

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I've done several of these and never has the IRS refused to waive the penalty.  Be sure to tell them the missed distribution was taken as soon as it was remembered and steps have been taken to assure it will never happen again (automatic annual distribution).  I believe the agency knows it isn't very popular with the public and doesn't want to be seen as taking money from little ole ladies, so it's quite forgiving with late RMDs.

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