Life and Death Planning for Retirement Benefits

Chapter 1: The Minimum Distribution Rules

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has been made showing no liability for such tax for such period) shall constitute the filing of a return of all amounts of such tax which, if properly paid, would be required to be reported on such return for such period.” § 6501(b)(4) . While this suggests that just filing the annual income tax return, Form 1040, with a “zero” entry on the line for “Additional tax on IRAs, other qualified plans, etc.”, could be sufficient to start the statute of limitations running even without filing Form 5329, the Tax Court has ruled that Form 5329 is the return that must be filed to start the statute running with respect to another IRA-related excise tax under Chapter 43 of the Code, namely, the tax on excess IRA contributions ( § 4973 ). Robert K. Paschall et ux., 137 TC 8. In light of the Paschall case, all participants over age 70½, and all beneficiaries (including trusts or estates named as beneficiaries) holding inherited retirement benefits, should consider filing Form 5329 every year, even when they believe they owe no penalty, just to start the statute of limitations running in case the IRS ever disagrees. B. How to avoid the six-year statute. § 6501(e)(3) provides that a six-year statute of limitations applies to Subtitle D taxes (which would include the excess accumulations tax) “if the return omits an amount of such tax properly includible thereon which exceeds 25 percent of the amount of such tax reported thereon.” If the taxpayer files a Form 5329 showing zero as the amount of excise tax he owes, and it is later determined that some tax was owed, it is obvious that the amount “omitted” will always be more than 25 percent of the amount shown on the return. The Code provides a way out of this problem. “In determining the amount of tax omitted on a return, there shall not be taken into account any amount of tax…which is omitted from the return if the transaction giving rise to such tax is disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the existence and nature of such item.” § 6501(e)(3) . Therefore, to keep the statute of limitations at three years instead of six years, one would need to file (in addition to a return showing “zero” penalty owed) a description of the “item” in the “return (or in a schedule or statement attached thereto) in a manner sufficient to apprise the district director…of the existence and nature of such item.” Reg. § 301.6501(e)-1(c)(4) . A statement could be attached to the return listing the retirement plans owned by the taxpayer, his age, and other relevant facts, and explaining how the RMD was calculated (or why no RMD was required).