Missed RMD VCP

[austin3515]

2016 RMD missed for an owner :(.  ERISA counsel suggested reporting the income on 2016 1040.  Do you guys think a code P on the 1099-R would do the trick?  Not sure if it is 100% the right code, but man it seems like operationally the easiest thing to do...

[RatherBeGolfing]

Wouldn't it be a current year distribution under VCP?  

[Tom Poje]

EPCRS VCP submission Appendix C Part 2 Schedule 8 says

 

• Defined Contribution plan only - The plan will distribute the required minimum distributions (with Earnings from the date of the failure to the date of distribution) to affected participants. For each affected participant, the amount to be distributed for each year in which the failure occurred will be determined by dividing the adjusted account balance on the applicable valuation date by the applicable distribution period. For this purpose, adjusted account balance means the actual account balance, determined in accordance with § 1.401(a)(9)-5 Q&A-3 of the Income Tax Regulations, reduced by the amount of the total missed minimum distributions for prior years.

my old notes had (so maybe its a 2 step process, 1 is the self correction, the 2nd begging for 50% waiver

• You can’t ask for the penalty to be waived until you have actually taken the distribution. This is proof you are trying to fix the situation as soon as possible.

• Fill out form 5329.

• Write letter begging for mercy, explaining the reason you didn’t receive the minimum distribution was the incompetence of the investment house or something similar.

• Years ago, it was required to send in the 50% penalty and hope the IRS would have leniency and waive the penalty and return the money. Now simply send in the letter with the Form 5329, and if they don’t accept your lame excuse they will bill you.

• Make sure there is enough evidence in the folder that your co-worker gets blamed

 

 

[austin3515]

In my case the missed RMD's were for owners so we are concerned that they are going to stick it to us.  We don't have a great story for why it was missed, just a miscommunication between us and the CPA.  We were thinking we could sweeten the pot on the VCP if they paid the taxes when due so even the Fed were in the same position they would have been otherwise...

[RatherBeGolfing]

3 hours ago, austin3515 said:

In my case the missed RMD's were for owners so we are concerned that they are going to stick it to us.  We don't have a great story for why it was missed, just a miscommunication between us and the CPA.  We were thinking we could sweeten the pot on the VCP if they paid the taxes when due so even the Fed were in the same position they would have been otherwise...

It is always a possibility that they will "stick it to you", but I think it is a very remote one.  The whole point of EPCRS correcting mistakes.  You bring it to their attention and correct it when discovered rather than having them find it on audit. A miscommunication is still an honest mistake, and it happens all the time.  Hitting you with a penalty for trying to correct a mistake would discourage you from correcting in the future and instead just hope you don't get audited.

I would be interested in hearing from others if they have or know of anyone getting slapped with a penalty in this situation? 

[Belgarath]

I have found the IRS very reasonable on this, and haven't seen the penalty imposed when a waiver has been requested. I suppose in an egregious situation they might be less forgiving, which is reasonable, but I agree with RBG that the possibility seems remote.

[austin3515]

Even when the participant is the owner of the business?  It makes me worry because they ask "was this a key employee" on the form and we have to provide the explanation of what happened.  To me that says success is not a guarantee.  The client doesn't mind paying the taxes in the prior year and I want the IRS to read it and say "well that sounds as fair as can be" and move on.