Since the deceased died before the Required Beginning Date for the deceased to have begun RMDs, distributions were required to have been made either annually over the life-expectancy of the beneficiaries beginning in 2010 (in this case, both would have had to have based annual RMDs on the life-expectancy of the older child, since the IRA was not split into separate accounts before the end of 2010) or for the IRA to be fully distributed by the end of 2014 under the 5-year rule. Since neither was done, there are missed required distributions subject to an excess accumulation penalty unless the taxpayer (the children) requests and the IRS grants a waiver of the penalty. These circumstances constitute reasonable cause for taking the required distribution(s) late.
The taxable result will be the same whether this unearned income appears on line 15 or on line 21 of Form 1040. However, entering it as a Form 1099-R (by substitute Form 1099-R if the payer does not issue a Form 1099-R), causing it to appear on line 15, will allow TurboTax to prompt for the information necessary to prepare and include Form 5329 to request a waiver of the excess accumulation penalty. Entering it as miscellaneous income will not cause TurboTax to generate Form 5329 requesting the penalty waiver.
