Getting penalty abatement for excess IRA contributions in multiple year transfer error

Submitted by John Williams on Wed, 2018-10-24 20:22

I have worked through two years of 5329 forms with amended returns to pay the 6% excise tax on IRA excess contributions. This due to a Roth transferring in error as a Traditional, with resultant excess, that I have now carried the excess forward to claim unused contribution limits.

Besides explaining the transfer error, my question now is what to say in the explanation section for the changes on the 1040X. Should I hope to avoid being assessed penalties at this point, by either explaining good cause, or a first time abatement ? I assume of the two, FTA is more easily established, so as to work with a short explanation on the 1040X. Might I avoid penalty assessment by proving a good explanation at this point? Will this possible suffice? Should I attach document copies?

Or is the only thing anyone gets is a later assessment of penalties letter, with ability to appeal the letter for abatement at that point?
I read the First Time Abatement is for a single tax year, does that mean it can not be used for both years, even with subsequent year’s excesses arising from the same initial error? I am not disqualified for FTA.

Does Good Cause require I not be part of the error? I did miss error for 2 years. Are banking documents of the error accepted, or is it more involved with the IRS needing more time dig in or to contact the banks etc.?
In case it matters, I have paid the excise tax due.
This is the home stretch for this tax nightmare, and I really need any advice or experiencse on how to handle it or what to expect.
Thanks everyone.



Submitted by Alan - IRA critic on Wed, 2018-10-24 21:10

There is no IRS authority to waive the 6% excise taxes for excess contributions. The last page of the 5329 Inst refer to a reasonable cause request to waive the 50% excess accumulation penalty for missed RMDs, not to waivers of the excise tax.  However, if the IRS bills you any late interest fee for paying the excise taxes late, you might be able to appeal the late interest fees. If so, I would wait until you get a bill for late interest, as the IRS may not bill you in the first place.

Submitted by John Williams on Thu, 2018-10-25 19:10

Thank you. Yes you are right about the excise penalty, I was not clear that I was asking about the penalty for Failure to Pay the 6% excise tax (.5% a month). 

  • You suggest I may not get billed for this in the first place. That would be good news.  That is why I asked about how the IRS determines this, and what I might say on the explanation section of the 1040X that would influence this.
  • It seems important because it is first opportunity to give explanation to the IRS, and I want to make good use of it. It sounds better to avoid getting billed in first place, rather than appeal the bill.
  •  Summary of what I am thinking to say, besides what happened, is:   I am self reporting and paying the $1000+ excise tax. This the first time I have had a failure to pay or other penalty issue.  The excise is result of a missed transfer error.  Is this enough to say on the 1040X to not get assesed the penalty in the first place? and is getting too detailed not a good idea at this point? 
  • Does anyone have any experience about when the IRS does not bill in a similar situation?
  • Any advice is welcomed, thank you.

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