United State Tax Reporter:
EXP ¶49,744 Excise tax for failure to make required minimum distributions.
An excise tax is imposed on a payee under any “qualified retirement plan” or eligible deferred compensation plan (i.e., a section 457 plan) if the amount distributed during the payee's tax year is less than the required minimum distribution for the tax year. Code Sec. 4974(a) .
For purposes of the excise tax, a “qualified retirement plan” includes:
- Code Sec. 401(a) qualified plans and Code Sec. 403(a) annuity plans;
- Code Sec. 403(b) annuities; and
- Code Sec. 408(a) individual retirement accounts (IRAs) and Code Sec. 408(b) individual retirement annuities. Code Sec. 4974(c) .
The minimum amount required to be distributed in a taxable year is determined under Code Sec. 401(a)(9) ,Code Sec. 408(a)(6) , Code Sec. 408(b)(3) , or Code Sec. 457(d)(2) , depending on the type of plan. Code Sec. 4974(b) .
CAUTION: Which required minimum
distribution (RMD) rules apply depends on which regs (IRS has issued regs in
2002 and proposed regs in 2001 and '87) apply. The “2002 regs” (see ¶4014.15 ),
which may be applied for 2002, must be applied after 2002, see ¶4014.15 .
For the applicability of the RMD rules under (a) proposed regs issued in 2001,
and (b) proposed regs issued in '87, see ¶4014.15 .
The amount of the Code Sec. 4974 excise tax is 50% of the amount by which the required minimum distribution exceeds the actual amount distributed during the calendar year. The excise tax is imposed on the payee for the tax year beginning with (or within) the calendar year during which the minimum amount is required to be distributed. Reg §54.4974-2 , Q&A 1; Prop Reg § 54.4974-2, Q & A 1, before removed by TD 8987, 4/16/2002[“Taxpayers may rely,” Prop Reg 1/17/2001]; Prop Reg §54.4974-2 , Q&A-1, [“Taxpayers may rely,” Prop Reg 7/27/1987].
IRS is authorized to waive the Code Sec. 4974 50% tax on insufficient required minimum distributions if the taxpayer establishes that:
- the failure to make the required minimum distribution is due to reasonable error ( Code Sec. 4974(d)(1) ;Reg §54.4974-2 , Q&A 7(a)(1); Prop Reg § 54.4974-2, Q & A 8(a)(1), before removed by TD 8987, 4/16/2002 [“Taxpayers may rely,” Prop Reg 1/17/2001]); Prop Reg §54.4974-2 , Q&A-8(a), [“Taxpayers may rely,” Prop Reg 7/27/1987]; and
- reasonable steps are being taken to remedy the shortfall. ( Code Sec. 4974(d)(2) ; Reg §54.4974-2 , Q&A 7(a)(2); Prop Reg § 54.4974-2, Q & A 8(a)(2), before removed by TD 8987, 4/16/2002 [“Taxpayers may rely,” Prop Reg 1/17/2001]; Prop Reg §54.4974-2 , Q&A-8(b), [“Taxpayers may rely,” Prop Reg 7/27/1987].
To obtain a waiver of the Code Sec. 4974 50% excise tax, the taxpayer files Form 5329, pays the tax, and attaches a letter of explanation. If the waiver request is granted, the IRS sends a refund. Instructions to Form 5329 , (2000) , p. 4 .
IRS has provided relief from the Code Sec. 4974 50% excise tax for taxpayers who failed to receive the minimum distribution from credit unions or banks in Rhode Island that were closed by order of the Governor of Rhode Island on 1-1- 91. The only IRAs covered are those that remained in a closed institution on 4-1-91, precluding distributions on that date. Notice 91-22, 1991-2 CB 617 .
Employees will not be subject to the Code Sec. 4974 50% excise tax if distributions are made in accordance with an election made before January 1, 1984 in accordance with Code Sec. 242(b)(2) , '82 Tax Equity and Fiscal Responsibility Act, PL 97-248, 9/3/82 , 1982-2 CB 462.
Cross reference.
For payees who must pay tax on excess retirement distributions, and additional estate tax on excess retirement accumulations, see ¶49,80A4 .