Failed RMD for 2008

[Burke]

Due to a "glitch" (custodian's terminology) the RMD for 2008 was requested but not issued until
1/26/09. I feel I can get any excess accumulations penalty waived if it comes up, but do we have to report this distribution on the 2008 return? TP will surely get a 1099-R for 2009 (which due to the waivers on RMD's will not require another distribution for this year.)

[ChEAr$]

reporting

Due to a "glitch" (custodian's terminology) the RMD for 2008 was requested but not issued until
1/26/09. I feel I can get any excess accumulations penalty waived if it comes up, but do we have to report this distribution on the 2008 return? TP will surely get a 1099-R for 2009 (which due to the waivers on RMD's will not require another distribution for this year.)

No, not reportable on the 2008 return since it was not received in the 2008 tax year.

I had same case but it was due to client forgetting to call them and take the RMD.
They had tried to call him first of December, but due to his age and paranoia, he thought
it was a sales call, or a scam, and hung up on the caller.

So around April 12th, we set everything right, closing out one IRA and taking the balance
of the RMD from the other and larger balance. Form 5329 was used to report the
malfeasance with proper request for waiver with statement attached to the paper filed
1040.

It actually worked out okay, no tax liability for 2008, and the RMD for 2008 to be
received in 2009, a year in which he doesn't even have to take an RMD.

This will put things in good order, cause next April I can then counsel him and persuade
him to go ahead at that moment to call for 2010's RMD while I listen in and make sure
it's done.

[Burke]

So, tell me, what is the responsibility of the custodian to send out the RMD each year? I have brokerages who send letters in or around December stating the amount of RMD for the current year and if they are not notified otherwise, a check will be sent for that amount. And they do it.. Others, it seems, notify the TP and ask for papers to be returned, but if not so advised, no RMD is sent. Is there a provision in the law/code which requires them to do anything?

[sea-tax]

First my understanding is that your client will report the income when the income and 1099r is received in 2009. But for 2008 you must calculate the penalty on form 5329 and don't pay the tax but rather request the penalty to be abated based on your reasonable cause. This is how I have done it for clients who have missed the RMD. Usually will take 6 months to a year to hear back but if the taxpayer has a legit excuse it will be abated.

Unfortunately I think you will find that blaming the custodian or broker or financial planner will probably not work for purposes of reasonable cause abatement of excess accumulation.Ultimately I think the IRS feels it is the clients responsibility. Usually reasonable cause abatement excuses will be like "was in the hospital for xxx number of months" , "taxpayer has a fatal health problem and was not able to make RMD". You get the point, though I guess anything is worth a shot,if you word it right and have the custodian give you a letter or some official document taking responsibility for the mishap it might work. Good Luck

And no I am aware of no law that makes it the custodian , broker or whatever responsibility to take out RMD. Some companies do it as a customer service item but I have never seen a law requiring it.

[KJ Judd]

I recently had a case where taxpayer had several IRA accounts. When calculating the MRD for the year, the bank IRA was inadvertently left out of the total. We discovered it while preparing the 2007 tax return.

I filled out the Form 5329 showing the underwithdrawal, indicated we withheld the additional amount needed plus the 2008 MRD in 2008 and asked for abatement. It took a couple months, but it was granted.

I believe there's a page in TTB describing the steps.

[erchess]

Calculation of RMD

I know little about this subject but my understanding is that if a taxpayer has more than one account of the same type only someone who knows about all the accounts plus the DOB of the taxpayer can calculate the RMD of the taxpayer. I further understand that the RMD may be taken by the taxpayer from whatever account(s) he or she desires rather than having to be taken proportionately from each one. If what I have said is correct then it's possible to understand why the IRS views the RMD issue as primarily the responsibility of the taxpayer.

Suppose that custodians automatically distributed from IRAs an RMD based only on the accounts of which they are custodian. Would this in all cases result in taxpayers having the appropriate RMD made? Would it be sensible to require custodians to do that unless they receive contrary instructions by some reasonable date such as 1 December?

[OtisMozzetti]

Excess accumulation penalty wasn't waived

My client requested his withdrawal for his first-time RMD about Christmas (not on the last day or two of the year!), but it also didn't come out until mid-January. I prepared his tax return including the excess accumulations penalty and with a request that the 50% penalty be abated because of the reasonable cause that the mutual fund didn't follow the taxpayer's instructions. Request was ignored. A year later, I prepared an amended return to remove the 50% penalty on the same grounds of reasonable cause that the mutual fund didn't follow the taxpayer's instructions. That time the IRS issued the taxpayer a check returning the penalty that in my humble opinion he really didn't owe.

EA in California