I need to claim an exception on mandatory withdraw panelty

[ehleeqwe]

I forgot to do the mandatory withdraw

[KenH1]

I misunderstood the question, my apologies.  I am not well versed in RMD exceptions.  You may need to re-post.  Thank you

[macuser_22]

Is this a Traditional IRA missed 2016 RMD?

[ehleeqwe]

Yes

[ehleeqwe]

Fidelity didn't take it for me because there was no cash in my account when they try to take it.

[macuser_22]

Are you using the online or CD/download version of TurboTax?
And do you have any other 2016 1099-R?

[macuser_22 · Accepted solution]

First, if you have not taken the missed RMD, take it ASAP so you can tell the IRS that it has been taken.

You will need to file a 5329 form and request a waiver of the penalty.

Unfortunately this can only be done using the "forms" mode that is only available with the desktop software if you do not have a 1099-R to file.

If you do have a 2016 1099-R to report then the RMD question in the interview will go to the form 5329 waiver interview if you say that the 2016 RMD was not taken.

If you are using the CD/download version:

Enter the forms mode and click on open form.  Type in 5329.  Choose 5329-T for the taxpayer (first person listed on your tax return), or 5329-S (for spouse - 2nd person on tax return).

Scroll down to Part IX line 52 and enter the RMD amount that should have been taken.  On line 53 enter the amount of the RMD that was actually taken (probably zero if it was missed).

Then in the box right under line 53 "Waver of Tax Smart Worksheet" enter the same amount as line 52 (the RMD amount).   Then click the "Explanation" button and enter the reason for missing the RMD and your statement requesting a waver.

You will not pay any penalty now until the IRS determines if it will grant the waver, then they will inform you if you owe the penalty.

OR - if using the Online version and have no 2016 1099-R to file, you will have to prepare the 5329 manually .

Download the 5329 form from the IRS website and fill it out the same as above.  Print and mail your return with the 5329 form and explanation attached as described in the 5329 instructions.

The 2016 5329 must be attached to your printed and mailed 2016 tax return and cannot be e-filed.

[NOTE: You can only use this method if you are requesting a waver of the penalty and there is no taxable amount on the 5329 form line 55 that must be transferred to the 1040 form]

From 5329 instructions:
Quote:
"Waiver of tax.   The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.
1. Complete lines 52 and 53 as instructed.
2. Enter “RC” and the amount you want waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54.
3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
  The IRS will review the information you provide and decide whether to grant your request for a waiver. "

Download blank 5329 form here:
Form: http://www.irs.gov/pub/irs-pdf/f5329.pdf
Instructions: http://www.irs.gov/pub/irs-pdf/i5329.pdf

[fanfare]

Is there any waiver scenario where Line 55 is not zero.? If so, what is it?
There must be one, since the instructions explicitly insist that you pay any tax shown on that line.

[dmertz]

By default, TurboTax assumes that you will be requesting a waiver on the entire missed amount.  I don't think one would normally want to ask for a waiver on less than that amount, but you can, and TurboTax will let you enter the lesser amount in place of the default amount.  If you request a waiver on less than the entire missed amount, the difference ends up on line 55 and you'll pay the penalty on that.

I can think of a scenario where one might have an illiquid investment as their only investment in an IRA (a bad idea when you are subject to RMDs) and they cannot make the distribution on which to base the request for waiver.

[macuser_22]

I can't think of any situation where anyone would *want* to pay the tax.  When requesting a waiver line 55 would always be zero.   That is just how the IRS wrote the instructions.  In fact, if for some unknown reason that someone actually wants to pay the tax, then the form cannot be filed this way since the tax on line 55 must be transferred to line 59 on the 1040 form and there is no way to do that if the form is separate form from the 1040 form as stated above.  If for any reason the IRS denies the waiver then they will bill you for the tax.  (In all the years that I have been dealing with this, I have yet to hear of a waiver denial.)

[fanfare]

If you can't make the distribution you can't request a waiver and the penalty is 50% you don't have to enter a waiver amount in that situation.

[fanfare]

From macuser22 qoutation above.
"The IRS can waive part or all of this tax "
." Enter “RC” and the amount you want waived "

[fanfare]

If you can't make the distribution I suppose you could argue illiquid asset as reasonable cause. I suspect IRS would probably not buy that one.

[dmertz]

To request a waiver, you must be "taking reasonable steps to remedy the shortfall."  If the distribution cannot be made, I maintain that you cannot be taking any steps to remedy the shortfall and therefore the IRS cannot grant the waiver.

[fanfare]

That's what I said in the first place.
Let's agree to disagree. I can't convince you and this will not be resolved in my mind until the IRS issues clarifying language.