Waiver of Required Minimum Distribution Penalty

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., in Woodbury, New York
• Pages: 15-16

15

WAIVER OF

REQUIRED MINIMUM

DISTRIBUTION

PENALTY

In the event that an IR A owner or the beneficiary of an inherited tra-

ditional IR A or Roth IRA v iolates the required minimum distribution

rules for a given year, then the IRS can assert a 50 percent excise tax

(penalty tax) against the payee for such year. The payee is responsible

for the payment of this penalt y tax.

According to Treas. Reg. §54.4974-2 at A-7, the IRS can waive the

50 percent excise tax on the basis of reasonable cause. The 50 percent

penalty tax can be waived if the payee establishes to t he satisfaction of

the IRS the followi ng:

1. The shortfall . . . in t he amount distributed in any taxable year

was due to reasonable error; and

2. Reasonable steps are being taken to remedy the shortfall.

The instruction to IRS Form 5329 indicates the procedure for

requesting a waiver by filing Form 5329 and attaching the appropriate

explanation to the waiver request.

In the event the IR A owner dies, then the legal representative of the

IRA owner’s estate may have difficulty in obtaining a waiver of the 50

percent penalty for any prior year IR A violations of the deceased IR A

owner. This assumes that the legal representative had act ual knowledge

or notice of such facts as would put a reasonable prudent person on

notice of this issue.

If the decedent’s accountant tells the legal representative of the

estate about the issue, then obviously t he legal representative must

address the issue with the IRS. In addition, if it is obv ious to the legal

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