Reconstruct the correct RMD amounts for each year since 2002 and distribute the total of all of them. Remember that RMDs were waived for 2009. This might take some research to determine the correct year end values of all IRAs for each year. Form 5498 would show those totals if retained, the IRA custodian could help, and if all else fails, request copies of the 5498 forms from the IRS.

Then complete stand along 5329 forms for each year to show the potential 50% penalty, send them together to the IRS with an explanation and request that the penalty be waived for “reasonable cause”. This procedure is fully outlined on p 6 of the 5329 instructions. The IRS will probably approve the penalty waiver, but of course the taxpayer will have a lot of taxable income to report for 2010. That will probably trigger the need to increase estimates or better yet to request an appropriate amount of tax withholding from the collective RMD distribution. The 2010 5329 can be filed with that return, so 2002-2008 forms are the years that need to be sent to the IRS service center. A copy of the statement showing the current make up distribution should be included with the 5329 forms.

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