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Tuesday, March 22, 2022
Email Consulting Guidance – Can’t Show a Distribution Made in 2022 as a 2021 Distribution
Email Consulting Guidance – Can’t Show a Distribution Made in 2022 as a 2021 Distribution
Posted by James M. Carlson
January 2022
Q-1. I have a client that did not take their 2021 RMD. They are now coming to us wanting us to fix it. They said that they signed up for an auto distribution but we do not have paperwork showing this. Is there anyway to still do a 2021 distribution. What is the best way to handle this?
A-1. There is no way to show that the distribution occurred in 2021 if it did not. It would be tax fraud to report a distribution occurring in 2021. The law does not depend upon whether the client or the bank or both were at fault.
The individual should withdraw their 2021 RMD as soon as possible. The client will have two RMDs in 2021 because the person includes a distribution in their income in the year they receive the distribution.
The individual can ask the IRS to waive the 50% tax which applies when a person has an excess accumulation. That is, they failed to withdraw all of their RMD. The individual should read the instructions as set forth in the instructions for Form 5329. The individual is permitted to prepare this form showing that they do not owe the 50% tax amount because they are allowed to assume the IRS will waive the 50% penalty.
The individual must in writing request the waiver and explain why the IRS should grant the request. The individual if they truly believe it was the bank’s mistake may make that argument. The IRS is not required to waive the 50% tax.
The bank may furnish a letter to your client admitting fault or partial fault if there is some evidence the bank made an error. The client would attach the bank’s letter to their request for waiver.