Waiving penalty on failure to take Required Minimum Distribution
There was no RMD made for 2016 due to the IRA trustee’s failure to do so and I am requesting a waiver of the penalty on Form 5329. My question is this, “do I still report the amount of the RMD on the 2016 tax return as if it had been made, or, do I report zero for the distribution on the 2016 tax return and pick it up on the 2017 return which is when the distribution for 2016 was actually distributed by the IRA trustee/custodian?”
Permalink Submitted by Alan - IRA critic on Mon, 2017-08-21 15:30
All distributions including RMDs are reported on Form 1099R and on the recipient’s tax return for the year the distribution was made, ie 2017 in this case. The taxpayer must also request that the 50% penalty for 2016 be waived using a 2016 Form 5329. The IRS will typically approve the waiver when the taxpayer makes up the missing RMD and files the form indicating a “reasonable cause” for the failure. The IRS is also very lenient in determining what such reasons are acceptable, including “I forgot the RMD and it will not happen again” or ” I thought the IRA custodian automatically distributed the RMD.” Note that IRA custodians do not automatically distribute RMDs due to the RMD aggregation rules, so this was only a trustee failure if the trustee was asked to distribute the RMD and failed to do so.
Permalink Submitted by Anonymous (not verified) on Mon, 2017-08-21 20:57
Thank you for your help. I appreciate it very much. My client requested the RMD but the trustee failed to make it in 2016. We have documentation to support the request and a letter from the trustee apologizing for not making the distribution. I will wait to report the distribution in 2017 when it actually got made. Thanks again.