MTW wrote:
- quote -

1040. As it is on the 1040 and was unintentionally left off,
I conclude that a timely return was filed and the statute
should run.

--
Alan
http://taxtopics.net

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"A.G. Kalman" <glendale202-mtm[at]yahoo.com> wrote:

- quote -

The countervailing factor to this "incentive" is that there
are criminal penalties for intentionally "forgeting" about
such things.

- quote -

It does appear that the statute runs. Section 6501 applies
to all taxes in Title 26 and section 4973 is in this title.

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A.G. Kalman <glendale202-mtm[at]yahoo.com> wrote:

- quote -

I don't know for sure. But, I would point out that Form 5329
is a "signature" form. It can be filed with the 1040, or it
can be filed separately. Indeed, it MUST be filed separately
if it is otherwise due and you weren't required to file a
1040 for the year in question.

With these thoughts in mind, it seems to me that a failure
to address the issue (by either enclosing the form with the
1040 or filing it separately) should be viewed the same as
having not filed a return for statute of limitation
purposes. But, that's just a guess on my part. <g
MTW

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sheesh3[at]yahoo.com wrote:
- quote -

You would have to provide me a citation to support your last
comment, as I find nothing in the code or regs that requires
an excess annual contribution to an IRA and its earnings to
be withdrawn. I can only find a citation that applies the
excise tax to the excess contribution each year it remains
in the account. The earnings on the excess are not subject
to the excise tax. It appears that the excise tax is
payable on the excess contribution up until the time the
taxpayer withdraws the excess and the earnings on the
excess. All this gets me back to my original question and
my final comment.

Does the statute of limitations for assessing tax apply to
the 6% excise tax on excess contributions? I can't find
anything that tells me it doesn't.

Finally, using my example, 6% of $1000 ($60 annual tax) is a
pittance compared to the effect of having to withdraw the
accumulated earnings. As far as I can tell, all he has to
do is pay the $60 for the open years and all future years
and calculate his RMD on the year-end balance each year.

I'm still a little confused on cost basis. I do think he
should reduce his cost basis for the $1000 excess if he
withdraws that excess in addition to his RMD. It's possible
that an excess contribution that was never deducted also
never adds to basis. However, I can't find a citation for
that either.

--
Alan
http://taxtopics.net

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

I would think that the failure to report it after reporting
it the first time would make it harder to prove it was an
honest mistake. I suspect that amending the returns will
allow proof that the mistake once discovered was corrected.
That is my guess however.

I do believe you have to withdraw all the accrued interest
on the excess contributions however. Re-read the
publications very carefully.

bex

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A.G. Kalman <glendale202-mtm[at]yahoo.com> wrote:

- quote -

Your point is well taken. I would wonder if a failure to
properly report the 6% excise tax on an annual basis is kind
of like a failure to file a return. In other words, the
statute does NOT run and the excise tax is still due. But, I
haven't researched that.

MTW

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I have an unusual situation that has necessitated my reading
up on excess contributions to an IRA and the 6% excise tax
imposed by Sec. 4973.

The taxpayer made an excess contribution in 1988. For
simplification, let's assume it was $1000. The taxpayer
paid the 6% excise tax for 1988. Taxpayer did not deduct
the excess contribution. Taxpayer informed the IRS that he
had made a nondeductible contribution of $1000 on Form 8606.
Taxpayer was not aware that the 6% tax is imposed on all
subsequent years as long as the excess remains in the
account. Subsequent to 1988, the taxpayer made annual
contributions to an IRA or a Roth IRA equal to the maximum
allowed. No taxable distributions were taken from any IRA
account. Taxpayer turned age 70 1/2 this month and wants to
take his first RMD this year. Taxpayer now realizes after
reading Pub 590 that he should have been paying the 6% each
year. Taxpayer has filed tax returns by the 4/15 due date
for each and every year subsequent to 1988.

Q.1 Set: Is the 3 year statute of limitation for assessing
tax applicable? Is 1989 through 1999 now closed? Does the
taxpayer just complete Form 5329 for 2000, 2001, 2002 in
order to pay the $60 tax (6% x $1000) for each year? If he
waits until April 16th does tax year 2000 close? He will
file Form 5329 with the $60 tax for 2003 with his 2003 tax
return.

Q.2 Set: He will remove the $1000 from his account in 2004
to eliminate the excess. This distribution will be in
addition to his RMD. I assume there is no requirement to
remove any earnings on the $1000 excess contribution to
avoid the 6% excise tax on future returns. In order to
compute the RMD, should he use the account balance in all
his IRAs as of 12/31/03 including that $1000 excess? I'm
assuming the answer is yes. This should be self correcting
for 2005 when his 12/31/03 balance will reflect his removal
of the excess.

Q.3. Set: He has made nondeductible contributions to his IRA
subsequent to 1988. His cost basis on his last 8606
included that $1000 he reported in 1988. As he intends to
remove the excess $1000 in 2004, am I correct that the cost
basis he enters on the 2004 Form 8606 Line 2 would not
include the $1000? (It's the only way any of this makes
sense.)

As an aside, the amount he has earned on that $1000 excess
contribution has been quite substantial. More than enough
to cover the 6% tax for all years and penalties. If the SOL
does run for only 3 years, isn't this an "incentive" for
taxpayers to just forget about any excess contribution?

--

Alan
http://taxtopics.net

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