Form 5329 tax, penalties and interest notice

Submitted by Cai Ip on Fri, 2023-07-28 18:46

Hello,
I had 6 years of inadvertent excess Roth contributions due to high AGI from 2013-2020. I figured out the 6% tax for each, filed a 5329 for each and included the total 6% tax amount in my 2021 1040 filing and payment. Some questions please and thanks: 1) I’ve now received notices for 2017-2020 that I owe the 6% tax penalty on the excess contributions, plus I owe failure to file, failure to pay and interest fees. How did they miss my payment and filing and letter re: the excess contribution and tax penalty that they say I still owe it? I’m planning to call them to clarify I’ve paid the 6% tax for each year, and thus need a corrected calculation for failure to pay and interest fees. The failure to pay charge for 2017 is $315, 2018 is $226.80, 2019 is $315 and 2020 is $158. If these are determined by months from due date (and i’ve paid timely for 1040 returns each April), why is 2019 more than 2018?
2) Are any of these disputable or possible for removal/reduction aside from the updated calculation?
3) should I be expecting that they’ll bill me for failures on 2013-2016 also?
4) I caught the excess in 2018 (but missed it in 2020, another story) and recharacterized a portion of 2017 and 2018 and noted it on my 2018 return, which makes me question now if I mistakenly counted that excess contribution amount again, though it had been recharacterized, when I filed the 5329s in 2021, thus paying more 6% tax than I should have…
What do I need to do here because the notices billing me more seem inaccurate? thank you.



Submitted by Alan - IRA critic on Fri, 2023-07-28 19:06

  • The 5329 forms are cumulative from year to year because the 6% excise tax is due for each year it remains uncorrected. For example, if your excess was 5000 each year for 6 years, by year 6 you owe 6% of 30,000. Did you complete these forms correctly? If not, you need to amend them and start with 2013. Be sure you consider any portion recharacterized as TIRA contributions as not being excess Roth contributions.
  • Each year’s 5329 should be filed separately with Form 1040X. The only 5329 that should have been filed with your 2021 1040 is the 2021 5329.
  • Other than the the excise taxes plus interest, it is rare that additional penalties would be levied. 

Submitted by Cai Ip on Fri, 2023-07-28 19:21

thank you. So the failure to file and failure to pay penalties are rare, is that what you are saying?I had a separate 5329 for each year, and yes the contributed amount that carried over each year until I withdrew the excess contribution amounts were factored in to determine the 6% tax. To clarify, I included the total 6% amount for those years (around 8k) in my 2021 Schedule 2 “Other Tax”, included the payment in my total 1040 amount owed electronic payment, but filed the 5329 paper separately. Perhaps that is why I’ve received the notices as if I have not paid the 6% tax owed…. Does sound I need to review how I accounted for the 2017-2018 recharacterized amount. 

Submitted by Alan - IRA critic on Fri, 2023-07-28 19:44

Yes, for excess contributions the failure to file and pay penalties are rare. It’s not clear what the IRS guidelines are on this. You case might be attributed to a rogue examiner, aggravated by the way you incorporated prior year 5329 excise taxes into your 2021 return. The IRS may not be considering the total picture. 

Submitted by Cai Ip on Fri, 2023-07-28 23:57

I got through with them and gained a bit of clarity, one of my mistakes was paying the tax owed on the 5329s in with my regular 1040 tax payment, it should have been separate I’m told because the IRS doesn’t know/ doesn’t connect the dots of all the returns filed, so they can’t tell a payment has been made for the 5329s.

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