This is an interesting challenge – an 87 year old individual reported on his 2014 tax return an RMD from his IRA that was not actually withdrawn from the account. The 2014 1099 matching program hasn’t caught up with him yet. In addition, he miscalculated the RMD by $994 (under the correct RMD for that year). He actually took his 2015 RMD in 2015 but took an amount that was too low by $1,950.
Errors were discovered in 2016. The first thing that was done was to actually take the 2014 correct RMD and the deficit for 2015 as well from his IRA immediately.
For 2015 it seems that he would file a 5329 using a technique I have seen elsewhere where he would indicate a zero on line 52 and write the letters RC (for reasonable cause) along with the RMD in brackets and attach a letter asking for penalty forgiveness. The challenge now is what to do with the 2014 RMD that was reported but not taken. Options:
1 – file an amended return for 2014 without the incorrect RMD. Ask for penalty forgiveness or applying the penalty to only the underpayment for 2014 and ask for penalty forgiveness for 2015 – again reasonable cause.
2 – File 5329 with appropriate letter in 2015 and then fight taxation of 2014 distribution actually taken in 2016 on the basis that he already paid tax on it.
I am inclined to take the first option since I can’t get past the fact that the distribution was not taken in 2014 so there is no way to legally report it as income in 2014 when it wasn’t actually withdrawn until 2016.