Is Form 5329 mandatory?

[RightOn]

Taxpayer made excess contribution to his Roth IRA (not enough earned income). He does not want to correct it. Under this situation, is it mandatory to file the Form 5329 to access the penalty on it? Or does the taxpayer have the choice to wait for the IRS to access the penalty?

I did enter the ROTH IRA contribution in the tax program. And there is no earned income at all. But the tax program does not generate the Form 5329 to access the penalty automatically. So that makes me wonder if it is mandatory. By the way, I use Drake.

[FEDUKE404]

Software problem . . . again ?

Taxpayer made excess contribution to his Roth IRA (not enough earned income). He does not want to correct it. Under this situation, is it mandatory to file the Form 5329 to access the penalty on it? Or does the taxpayer have the choice to wait for the IRS to access the penalty?

I did enter the ROTH IRA contribution in the tax program. And there is no earned income at all. But the tax program does not generate the Form 5329 to access the penalty automatically. So that makes me wonder if it is mandatory. By the way, I use Drake.

Interesting.

My tax software automatically places an entry on line 23 of Part IV of Form 5329 using the scenario you mentioned.

One would think most tax software worth its oats would do the same thing? ? ?

My personal take is that you would be preparing an improper/incomplete tax return (think liability) should, for whatever reason, you decide not to complete Form 5329.

FE

[TXEA]

The form 5329 should be prepared. One of the requirements to file Form 5329 is if you made excess contributions. The only way I would not prepare the form is if the client documented that he/she has withdrawn the excess contribution by the time of filing or has initiated the process such that it will be done by the due date of the return including any applicable extensions.

Should the client withdraw the funds in the next six months, you can file an amended return and remove the excess contribution penalty.