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I have a friend who completed her RMD paperwork on 12/18/12 with her financial advisor. Somehow the paperwork did not get processed. She found out yesterday and the distribution paperwork was resubmitted. The entity actually holding the assets informs her advisor that they cannot do anything about the date of the distribution which will now be 1/3/13.

My questions are these: Is the 50% penalty a hard and fast, never broken outcome? If so, is there any advantage to her in writing a letter to accompany her 2012 tax returns or should she just wait until the 2013 return (or an IRS letter sometime in 2013) to address the issue? What, in your opinion would be the appropriate course of action for her to take with regards to the IRS at this point?

Unsure how to advise her in this situation.

She need not do anything with the IRS at this time. The first thing I would do is push back harder on the advisor and asset holding entity to find out what happened. They all should have document tracking systems. If the paperwork was in order and submitted timely to her advisor, then they should be able to process late.

If, in fact, it was an error by someone other than the account holder, a threat to file a written complaint with the appropriate compliance departments and regulatory agencies may also spur some action.

At some point, probably in a year or two, the IRS will realize that the RMD wasn't taken and will ask questions. She can explain what happened at that time and point out that she took immediate action to correct the error when it was discovered.

If it gets this far, the advisor, etc., should make good on any penalties assessed by the IRS.

Depending on the responses I got, I might seriously consider moving my account elsewhere.

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