Form 5329, Part 9 guidance needed for federal and state 2023 and impact on 2024 taxes

[hiwatt]

No.. I truly meant 75% - they assessed a penalty of $4872 on a missed distributions of $6496. My lines 53 and 54 have the value 0. and line 55 has no value but "SEE STMT RC 6,496" in the white space. My Waiver statement was included in the return (last page) followed by explanation letters from my custodian on their letterhead.

[hiwatt]

Please see my reply to fanfare, just posed >>

"No.. I truly meant 75% - they assessed a penalty of $4872 on a missed distributions of $6496. My lines 53 and 54 have the value 0. and line 55 has no value but "SEE STMT RC 6,496" in the white space. My Waiver statement was included in the return (last page) followed by explanation letters from my custodian on their letterhead."

I sent the IRS a reply today with a full typewritten letter, including copies of my original 5329 and 1040 schedule 2 and the Waiver Explanation (both from TurboTax), and again the explanation letters from my custodian, and requested them to review their assessment.

On the CP11, forst page, there is a heading "Why we changed your information", and under that a bulleted explanation "We changed the amount of addition tax on IRA's and other qualified retirement plans, reported on your tax return. There was an error transferring the tax from Form 5329, Additional Taxes on Qualified Plans (including IRAs)  and Other Tax-Favored Accounts."

I'm guessing that it's not unlikely that no human even looked at my return, but I have no conjecture at all about how they came to the amount of tax assessed. It's a messed up sitution, but it's clear that either their system or else some reviewer expected tax to be transferred from my 5329 to my 1040 Schedule 2, line 8.

[hiwatt]

I completed the Waiver Explantion in Turbo Tax, and it printed and was included as the last page of my return. The field does not allow a great deal of textual entry, but enough so that my case was sufficiently clear - especially with the inclusion of the letters from the custodian, which were unambiguous - that they were responsible for the error, and had corrected it and made the distributions.

I mailed my reply today with a full and extended explanation which I composed, and requesting a review.

[hiwatt]

I would also note that the IRS instructions state that the amount of the waiver being requested in the white space on line 55 should be contained in parenthesis - which normally indicates a negative value, and which TurboTax does not and will not do. They also seem to indicate that if one qualifies and is requesting a waiver, they should nevertheless indicate eligibility for the 10% rate via the check-box on line 55, calculate the tax, and include payment - which hopefully would be kicked back if the waiver was ultimately granted. From my case it is clear that either the system or the reviewer expected some positive value of tax to be transferred from my 5329 to my 1040 shcedule 2.

That all being explained, I welcome any additional comments on my case.

[hiwatt]

Can anyone suggest whether it might be helpful to request a transcript of my return? I'm not sure if that might show how my 5329 was processed. Thx -

[fanfare]

if your explanation was clear and complete, your penalty ( of whatever percentage ) should be zero-ed out.

The max penalty in 2023 is 25% of the shortfall when IRS discovers your error before you do.

[hiwatt]

Thank you - I hope that will be the case, but of course it's bothersome while unresolved favorably. My understanding from looking into it is that the penalty can be up to 50%, but I don't have a citation at hand. The advisory letter from my custodian also says "up to 50%".

[fanfare]

Penalty can be up to 50% if you missed taking a 2022 or earlier RMD.