late minimum required distributions

[Guest JBeck]

If an IRA beneficiary fails to commence required minimum distributions for a few years, discovers the error, then takes the required minimum distributions into income for the current year, what is the likelihood of the IRS assessing the 50 percent penalty if taxpayer is audited and the error is discovered? Has anyone ever had the 50 percent penalty assessed?

[Guest ERISA_kid]

The IRS instructions to Form 5329 indicate that the 50% penalty may be waived in situations where the failure to satisfy the RMD was due to reasonable error. My sense is that the Service would perceive a failure to satisfy the RMD for a number of consecutive years as more than reasonable error. However, it doesn't hurt to ask for a waiver. The worst case scenario is that the waiver will be denied! My suggestion is to satisfy all delinquent RMDs, pay the penalty on IRS Form 5329, and attach an eloquent letter explaining why the RMDs were not taken and why it would be inequitable to levy such a large penalty on an innocent taxpayer.