My basic question: Must penalties be determined (or waivers requested) on RMDs from previous years for a traditional IRA that was just rediscovered *and* fully distributed in 2023 (with 10% withheld), apparently by the custodian unbeknownst to the owner, and for which a 2023 1099-R noting that distribution was issued?
Full story: It appears my relative, whose tax return I'm completing for the first time, forgot he had this IRA. In his past few years' worth of tax folders, I find no documentation or notes on it. Then this year, a year-end statement arrives as well as a 1099-R showing the account was closed and the balance fully distributed, minus a 10% withdrawal. That distribution, presumably in the form of a check, appears to have been lost last fall, and now it's unclaimed property with the state (Illinois). We can file a claim to get that money. The distribution is substantially more than the RMD for 2023, as you might guess.
He and his wife each knowingly had one other IRA account, from which RMDs were precisely taken over the years.
So, do I have to determine the required 2022 and 2021 RMDs, then file Form 5329 plus amended 1040's to face penalties (or request a waiver from them)? Or will the IRS be happy with the big tax payments made and to be made -- the withdrawal last fall plus more taxes with the filing of the 2023 1040? (We don't worry about 2020 because RMDs were not required, and then I'm not worrying about earlier years because the IRS basically doesn't accept voluntarily paid taxes overdue by more than three years, at least per a notice my client once got when we tried to make such a payment.)
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Well, it took some doing, but I found good advice here: https://www.kitces.com/blog/fix-rmd-missed-forgotten-miscalculated-corrective-action-form-5329-penal...
(Written five years ago, but I presume the principles apply.)
This adviser suggests I need file only the Form 5329 for the past years, pay nothing (be sure to leave a zero on Line 54!), and request the waiver with your "reasonable cause" and actions taken to correct the forgotten RMDs -- in my case, the full distribution taken last fall and taxes paid accordingly.
This adviser also suggests the 3-year rule about IRS tax collections does not apply, because Form 5329 technically would be its own "return" on which the clock hasn't started until it's actually filed. So presumably you could have to file Form 5329 for 10 years back or more (using the 5329 form made for each of those years). I don't know if I can even find out what happened before 2020, plus I'll have to estimate the required RMD for 2021 and 2022, but I just may make a good-faith effort for those two years and leave it at that.
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