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Subject:  Re: K-1 Section 751 statement Date:  2/26/2009  10:05 AM
Author:  drippinfool Number:  104743 of 127616

"The 5329 instructions have conflicting bullets in the "Who Must File?" section. One is the bullet you mentioned, which says that a 5329 is required if you got an early distribution and box 7 didn't have code 1. The next two bullets are in direct contradiction, saying that if a penalty exception applies and the code is not 1 you don't need to file the 5329. I can't imagine how you got confused.

Here's the "trust me, this is how it works" explanation. A code 1 on box 7 means you took a premature distribution subject to the 10% penalty. Code 2 means you took a premature distribution not subject to the penalty. If the box 7 code is correct, no 5329 is required. When you e-file the software will correctly include the penalty for code 1 and exclude the penalty for code 2. Since I retired early my 1099-R for years had code 2 until I reached normal retirement age. IIRC software warned me to make sure I met the exception, but processed everything correctly. I've never filed a 5329 and never had an inquiry from IRS.

Assuming you meet a penalty exception, you don't need to file a 5329 with your return. If you want to file one anyway, that form can be filed by itself. Just download the form, fill it in, correctly please, and send it on its own.


First, thanks for your patience and perseverence.

Second, no wonder I got a "scratching our collective heads" letter from the IRS when I submitted the prior year Forms 5329 (I filed them retroactively to 2004 after reading on the Retire Early Home Page that they had been required since that year and then reading the Form 5329 instructions.)

Third, who is going to tell intercst and more importantly the IRS that their Form 5329 Instructions are contradictory and that folks who qualify for an exception to the 10% penalty don't need to file Form 5329?

If you have no objection, I will post a link to this thread on the boards that intercst frequents. I'll let you volunteer to tell the IRS that their instructions are confusing and may need clarification.

Again, many thanks for your time and efforts.

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