Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

being taken to remedy the shortfall.” Reg. § 54.4974-2 , A-7(a). The request for a waiver is submitted with Form 5329; see IRS Publication 590-B (2015), p. 27.

Form 5329 can be filed as an attachment to the income tax return, Form 1040 or 1041. Alternatively, it can be filed as a stand-alone return (for example, if the taxpayer has already filed the income tax return for the applicable year). When Form 5329 is filed as a stand-alone return for a particular year form which the taxpayer has already filed an income tax return, there is no need to also file an amended income tax return. Reporting and paying (or requesting a waiver of) the excise tax for a past year does not change the reportable income or the income tax calculation for such past year.

The “payee” does not have to pay the excise tax as a condition of requesting the waiver; that condition imposed by the IRS prior to 2005 no longer applies.

Unlike with hardship waivers of the 60-day rollover deadline ( ¶ 2.7.05 ), the IRS has not published guidance regarding what constitutes “reasonable error” sufficient to justify failure to take an RMD. In PLRs 2014-37025 and -37034, the distribution of death benefits from an IRA was prevented by court order pending the outcome of bona fide litigation among various parties regarding who was entitled to the account. Once the litigation was settled the winning contestants received a waiver of the excess accumulations tax; the IRS found that the court order preventing access to the IRA was “reasonable cause” for failure to take the RMD. Presumably the requirement that reasonable steps be taken to remedy the shortfall means that the taxpayer must take the distributions that were missed in prior years before requesting the waiver.

For a detailed roadmap to applying for a waiver of the excess accumulations penalty see the author’s Special Report: IRA Mistakes and How to Fix Them ( Appendix C ).

Statute of limitations on the 50 percent excise tax

In general, the IRS must assess taxes within three years after a required return for those taxes was filed—and there is no statute of limitations if no return is filed. § 6501(a) , (c)(3) . The goal of participants and beneficiaries should be to assure themselves the protection of the statute of limitations with respect to assessment of the 50 percent excise tax for missed RMDs under § 4974 . A. What is the “return” you have to file? A “return” for this purpose generally means “the return required to be filed by the taxpayer.” In the case of the 50 percent excise tax, the “return” required to be filed to report the tax is Form 5329. See Reg. § 301.6501(e)- 1(c)(4) . The tax for failure to take a required distribution is imposed by § 4974 , which is part of Subtitle D (“Miscellaneous Excise Taxes”) of the Code. In the case of an excise tax such as that under § 4974 , “the filing of a return” for the applicable period “on which an entry has been made with respect to a tax imposed under a provision of subtitle D (including a return on which an entry