Form 5329 failure to take required minimum distribution from inherited 401k

[orangeotis13]

I inherited a 401k from my deceased sibling in 2007.  I was required to take distributions starting in 2008.  The 401k company made a mistake and did not inform me of the need to take the distributions, even after I asked several times about whether RMD's were required.  In 2019, the company realized that I needed to take the RMD from 2008-2019 and the funds were distributed.  I received a 1099G with the total amount of the distribution for all years.

I included the total distribution as RMD for 2019.  I submitted the return in Turbo Tax Premier and realized I forgot the Form 5329.  The return has been accepted by the IRS and my State.

How do I report the 1099G?  Do I report the 2019 portion on my 2019 return and all the previous year amounts on a 2018 Form 5329?

Will I need to file an amended return for 2019?  for 2018?  for other prior years?

The 401k company provided a letter stating their mistake and that all the previous RMD have been satisfied.  Do you think this will be sufficient for the IRS to waive the excise tax?  Also, I am set up to receive annual distributions of the RMD.

I read some information in the Turbo Tax help that the Form 5329 and the letter of explanation cannot be e-filed with an amended tax return and must be mailed to the IRS.

Can you help me sort out the steps I need to take to file the correct forms with the IRS?  Does this affect my State return?

[macuser_22]

A 1099-G??? or a 1099-R?

[macuser_22]

You are required to file a separate 5329  for each tax year using the 5329 for for that year.   Past years form can be obtained here:

https://apps.irs.gov/app/picklist/list/priorFormPublication.html;jsessionid=ZIBAezmlBR40D89ZdXjcpNDs...

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. "

I would include the explanation above and a copy of the letter from the bank admitting fault.   The IRS usually always grants the waiver if the missed RMD has been satisfied.

[fanfare]

It would be rather silly to submit so many 5329 forms all at once.

Wait for the IRS to make an issue of it.

No matter what, you have a "reasonable cause" argument with that letter. Don't lose it.

[macuser_22]

The point is to avoid "the issue" in the first place rather then trying to fight it when it becomes "an issue".

[fanfare]

You can be certain there will be an issue if you send in so many 5329 forms for so many years.

Besides, you need to know the RMD amount for each year, Does the letter break down the total distribution amount into RMDs for each year?

[dmertz]

If the IRS catches the failures to take RMD before requests for waiver of the excess accumulation penalties are made, the IRS will be less likely to grant a waiver of the 50% penalties.

Be aware that RMDs for tax-year 2009 were waived due to the financial crisis, so no 2009 Form 5329 requesting waiver for a missed RMD in 2009 is needed.

[macuser_22]

Right - save yourself the trouble for filling out a bunch of almost identical forms and risk a huge bill that could be thousands of dollars depending on the amount of RMD's missed.  To fix that would probably involve getting a tax attorney and possibly tax court.  It is best to follow the letter of the law because the law is on the IRS side.

Once the IRS receives the 2019 5329 and the letter, they are much more likely to check prior years and apply a penalty.   One they do that, a waiver is much more unlikely.