Form 5329, Client refusal

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  • Gretel
    Senior Member
    • Jun 2005
    • 4008

    #1

    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?
  • jainen
    Banned
    • Jul 2005
    • 2215

    #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.

    Comment

    • OldJack
      Banned
      • Dec 2005
      • 1689

      #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.

      Comment

      • Bees Knees
        Senior Member
        • May 2005
        • 5456

        #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.

        Comment

        • Gretel
          Senior Member
          • Jun 2005
          • 4008

          #5
          Originally posted by jainen
          >>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.

          Comment

          • jainen
            Banned
            • Jul 2005
            • 2215

            #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.

            Comment

            • OldJack
              Banned
              • Dec 2005
              • 1689

              #7
              Originally posted by Bees Knees
              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.

              Comment

              • Black Bart
                Senior Member
                • Jun 2005
                • 3357

                #8
                It usually

                Originally posted by Gabriele
                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

                • Snaggletooth
                  Senior Member
                  • Jun 2005
                  • 3315

                  #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

                  • Gretel
                    Senior Member
                    • Jun 2005
                    • 4008

                    #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.

                    Comment

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