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Form 5329, Client refusal

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    Form 5329, Client refusal

    Client has excess contribution to IRA (no earned income, just royalties received-not a working interest), resulting from not believing me that he had to take it out last year.

    Now I am required to file form 5329 but he refuses. Has anyone experience how long it will take for the IRS to catch on and send him a letter?

    #2
    collect your fee

    >>I am required to file form 5329 but he refuses.<<

    You are not required to do anything. If he wants to proceed with your engagement, prepare the return correctly and collect your fee.

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      #3
      When you say "excess" do you mean an amount greater than what he can deduct or do you mean an amount greater than the maximum allowed for anyone ($4,000 or $5,000).

      If it is just an amount greater than he can deduct, there is no penalty or form 5329, it is just non-deductible tax basis reported on form 8606.

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        #4
        The excess contribution penalty applies to the excess over earnings. If there are no earnings, there is no IRA contribution allowed. Not even the $4,000 or $5,000 amounts.

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          #5
          Originally posted by jainen View Post
          >>I am required to file form 5329 but he refuses.<<

          You are not required to do anything. If he wants to proceed with your engagement, prepare the return correctly and collect your fee.
          I my eyes you say two opposite things in one breath. To prepare the return correctly I have to file form 5329 if I know about the situation, have I not? I would be more than happy to learn that I am wrong.

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            #6
            prepare the return correctly

            >>To prepare the return correctly I have to file form 5329<<

            To prepare the return correctly you must include Form 5329. Whether the client chooses to sign and file it is not your problem.

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              #7
              Originally posted by Bees Knees View Post
              The excess contribution penalty applies to the excess over earnings. If there are no earnings, there is no IRA contribution allowed. Not even the $4,000 or $5,000 amounts.
              Then how would you have non-deductible IRA contributions to report on form 8606, line 2?

              EDIT: Don't bother answering the dumb question. I guess I had a brain fart! I knew excess was if no earnings.. just wasn't thinking today. My bad.
              Last edited by OldJack; 03-29-2007, 04:06 PM.

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                #8
                It usually

                Originally posted by Gabriele View Post
                Has anyone experience how long it will take for the IRS to catch on and send him a letter?
                takes about a year and a half for them to match things up on paper returns. If mailed now, he'd probably get a letter on it sometime around August of 2008. Unfortunately for him, penalty and interest begins running now.

                Anyway, I'm with the others -- if he would not agree to do it right, I would not do the return.

                Comment


                  #9
                  Lesson in Manners

                  Gabriele, this guy needs a lesson in manners.

                  First of all, there IS no IRA deduction as others have observed. I think you intended to state that this guy has a required minimum distribution that he is failing to report.

                  Do you have paperwork from the IRA custodian that leads you to this conclusion? Is there a 1099-R? Has he been told he should have a RMD and has refused, thus leading to 5329 situation?

                  If you have paperwork from the custodian, I would defray the customer by telling him that his problem is with the custodian, not with you. The custodian has told you this is a penalty situation, and has already told the IRS this is a penalty situation.

                  I can't believe he would refuse the 5329 knowing IRS will be coming after him with a deficiency letter. Lots of these fist-pounders back off in a hurry if they know they are throwing up a red flag.

                  I would stick by my assertions and file the 5329. Tell him if he doesn't want to file it, he will need to go somewhere else. I don't know about a small town in Montana, but here in my corner of the world he could probably find someone who would do this for him. Occasionally, I lose customers to the "guy across town."

                  Best regards, Ron Jordan

                  Comment


                    #10
                    Thanks to you all. I know exactly what I need to do: Prepare the return including the penalty and send my client away if he refuses.

                    It's actually a sad story. Here it goes just for clarification for anyone who is interested:

                    This guy never had enough money to even think about putting any money into a retirement fund, now he is over 65 and finally got some money out of his royalties. Since, already as a child, he had worked for what he is getting now, he was under the impression this would be earned income to him.

                    So in a way he fulfilled his dream for once in his life being able to put money into an IRA. It just very hard to let go of your dream, and I know all about that.

                    I spend an hour with him last year trying to avoid all this, but in his eyes I am the one who tries to take away his dream, that he has a right to have.

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