I have reviewed all the exceptions to penalty for early withdrawal from an IRA, but none apply to a tragic situation encountered by my spouse.
In 2022, my spouse was the victim of Identity Fraud which we reported to the local Police, sitting down with a Detective, specializing in these types of cases (the Police issued copy of the "Incident Report"). The police told us that the type of extortion that we reported is unfortunately quite common. Also, we mailed a letter to the IRS, along with copy of the "Incident Report" and more details on the early withdrawal, asking them for advice on ways to "reverse" the Penalty paid. The letter was mailed more than 6 months ago, but we have as of today's date, not hear back.
What took place was that my spouse was called by an overseas individual (claiming to be a police officer), leveling incredible accusations, demanding that unless they receive money, they would ask U.S. authorities to intervene. The phone number looked entirely legitimate (phone numbers can be easily phished as well, based on what the Detective told us) so my spouse got visibly extremely distraught, thinking that the caller was truly contacting on official business. Again, this tactic is very typical in scams such as the one we reported to the police.
So, with the above in mind, my spouse decided to withdraw funds from an IRA (there was no need to do that at all ,but given the the amount of money these criminals demanded, there was no other way but to withdraw all of the funds in the IRA account). Fortunately, my spouse did NOT wire any of the funds to these criminals (I urged my spouse to NOT do that but report this to the police). However, the Penalty for early withdrawal needs to be paid (that is quite clear from filing our returns just now).
What can we do? Given the lack of any letter from the IRS, perhaps there is a way to obtain some relief or reversal of the Penalty paid in the tax year 2023 or later, assuming that we get a decision by the IRS through mail in 2023.
Awaiting suggestions!
Sincerely,
JJ
