Judith Marrs wrote:

- quote -

Assuming you met the full set of exception criteria, up to
$10,000 of the IRA distribution would be exempt from the 10%
early distribution penalty. See page 51 of IRS Pub 590 for
the full set of criteria to qualify for the exception. Your
closing statement and the date of the distribution should
suffice.

--
Alan
http://taxtopics.net

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Judith Marrs wrote:

- quote -

Maybe. Internal Revenue Code Section 72(t)(2)(F) provides
for an exception from the 10% premature distribution penalty
for up to $10,000 withdrawn from an IRA and use to pay
expenses of purchasing a home by a first time homebuyer, if
the amounts are paid within 120 days of the date of
withdraw. The $10,000 is a *lifetime* limitation.

Note that a "first time homebuyer" can actually be someone
who owned a home before, but I presume that's not an issue
for you.

That exception only applies to IRA distributions--there's no
corresponding provision for other retirement plan
distributions.

- quote -

The GAO each year does a survey of IRS telephone answers,
and their results indicate you shouldn't be surprised
<grin> . As well, the IRS is not bound by any answer that
proves to be in error--the only benefit you get is that it
will serve as reasonable cause to abate penalties that have
a reasonable cause exception.

The 10% "penalty" isn't actually a penalty under the law
(it's just an extra tax) *and* there's no reasonable cause
exception to it anyway, so even if someone at the IRS told
you that you didn't owe it on any of the distributions, it
wouldn't help.

- quote -

Well, I'd start by simply submitting the Form 5329 you
*should* have submitted with your original return to pay the
10% tax with your explanation back to them, and entering the
proper exception code on the form. I suspect that the IRS
will accept that along with payment of the other tax and
interest due and you are done.

If they ask for more support, what you would need to do is
document *when* you received the IRA distribution and then
document an amount equal to at least that amount (or $10,000
if you took more than that) as being paid within 120 days
after the IRA distribution that related to costs to acquire
the residence. But I doubt you'll get to that point with
this request.

--
Ed Zollars, CPA
Phoenix, Arizona

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"Judith Marrs" <jmarrs[at]myspeedworks.com> wrote:

- quote -

Only money withdrawn from an IRA to pay closing costs are
exempt from the 10% penalty, and then only up to $10,000 of
funds withdrawn. Anything over $10,000 withdrawn from an
IRA, and anything withdrawn from any other type of
retirement account, is subject to the 10% penalty.

Barry

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Here's the problem...

I took out 3 retirement savings withdrawls in 2001 to use to pay closing
costs on a house. All of these savings were payroll deducted, with no fed.
tax charged on them. I claimed all three as income for the tax year (2001)
and payed the IRS income tax on them. I was classified as a first time home
buyer since I hadn't owned a home in 11 years. The IRS said that I owe a
10% penalty on all 3 early withdrawls. One of them was an IRA (not a Roth).

One of them was a tax-deferred annuity. One of them was the (TN) state
retirement amount the state takes out of your check if you are a teacher.
The last person I talked to at the IRS now says I owe the 10% penalty on the
two withdrawls that were not IRA's, but not the one that was an IRA because
I used it for a first-time home purchase. Is this correct? This is not
what the first three people I talked to at the IRS said. They had 3
different opinions about what I owed. If this is correct, what do I have to
submit to prove that the IRA was used for closing costs on a first-time home
purchase?

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