missed RMD for beneficiary of owner

[YankeeFan]

A corporation sponsors a defined contribution plan. There are no employees other than the 100% owner. The owner is beyond age 70 1/2 and receiving required minimum distributions from the plan. All RMDs for 2010 and prior years were distributed on a timely manner. During 2011, the owner dies (before receiving the 2011 RMD) and the owner's spouse (who is the sole beneficiary) is required to receive the 2011 RMD before December 31, 2011. The 2011 RMD is calculated by the TPA and communicated in writing to individuals handling the affairs of the deceased owner.

Partially as a result of being unfamiliar with the plan operations, the owner's spouse did not receive the 2011 RMD prior to December 31, 2011. The client would now like to correct the defect by submitting the plan under VCP. The intent is also to get relief from paying the 50% excise tax on the missed RMD.

According to the VCP guidelines, if there has been a failure to satisfy the minimum distribution requirements, the IRS will waive the 50% excise tax if the plan sponsor applies for relief through VCP and requests the waiver as part of the submission. If the affected participant is an owner-employee or a 10% or more owner of a corporate plan sponsor, an explanation supporting the waiver request must be attached.

If the plan is submitted to the IRS under VCP, is there a possibility that the IRS may not accept the client's explanation and then impose the 50% excise tax on the missed 2011 RMD?

[ETA Consulting LLC]

If the plan is submitted to the IRS under VCP, is there a possibility that the IRS may not accept the client's explanation and then impose the 50% excise tax on the missed 2011 RMD?

Yes, there is "ALWAYS" that possibility; technically speaking. You'd be surprised, however, how human many IRS agents can be. They may drill you, but once it becomes clear that there wasn't any intent to deceive and the situation was nothing more than a misunderstanding, they will typically approve what you're trying to do.

Good Luck!

[YankeeFan]

If the plan is submitted to the IRS under VCP, is there a possibility that the IRS may not accept the client's explanation and then impose the 50% excise tax on the missed 2011 RMD?

Yes, there is "ALWAYS" that possibility; technically speaking. You'd be surprised, however, how human many IRS agents can be. They may drill you, but once it becomes clear that there wasn't any intent to deceive and the situation was nothing more than a misunderstanding, they will typically approve what you're trying to do.

Good Luck!

Thank you for the response. I'm curious if anyone has had any experience with the IRS on a similar matter.

[rcline46]

We did one for beneficiaries that had been taking RMDS for several years and missed 2010. IRS accepted VCP and did not impose the excise tax.