HRBlock software: improper handling of 5329 waiver of penalty

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Kevin M
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HRBlock software: improper handling of 5329 waiver of penalty

Postby Kevin M » Tue Apr 18, 2017 3:20 pm

We used HRBlock tax software to complete my mom's 2015 tax return, and she had neglected to take her (relatively small) RMD in 2015. The tax software informs you that you must pay the 50% penalty, and attach a letter of explanation, which is what we did.

In another thread (on the Vanguard RMD service), I mentioned this, and that she had not received a refund of the penalty or any communications from the IRS about it. Alan S informed me that the instructions for Form 5329 explain how to deduct the penalty, so you don't actually pay it up front as the HRBlock software says to do. Of course Alan is right, and this is easily verified by reading the instructions.

We agreed that filing a 1040X was the way to go to get this corrected. I just started working on this, and came across the HRBlock improper handling of it. There is no way to do it, using the HRB interview, as Alan and the 5239 instructions say to do.

Here are the IRS instructions:
1. Complete lines 52 and 53 as
instructed.
2. Enter “RC” and the amount you
want waived in parentheses on the
dotted line next to line 54. Subtract this
amount from the total shortfall you
figured without regard to the waiver, and
enter the result on line 54.
3. Complete line 55 as instructed.
You must pay any tax due that is
reported on line 55.
The IRS will review the information
you provide and decide whether to grant
your request for a waiver.

There is no way to enter "RC" and the amount you want waived on the dotted line next to line 54 using the software, and of course the amount on line 54 is calculated by the software based on the amounts on lines 52 and 53 (52 = RMD, 53 = amount distributed, 54 = Line 52 minus line 53).

However, what you can do is open the form and override the amount on line 54, so I overrode it and entered 0. You can't e-file when you override an entry, but since you can't e-file 1040X anyway, we will print it out, and write in the entry on the dotted line next to line 54 of Form 5329 per instruction step 2 above by hand.

After doing the override above, completing the 1040X was easy, and the refund of the penalty amount is indicated.

My normal policy is to study IRS instructions and other publications for any tax topic I'm not already familiar with, but I was lazy and didn't do this for Form 5329. Another lesson not to trust tax software without doing your homework.

Kevin
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Ostentatious
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Re: HRBlock software: improper handling of 5329 waiver of penalty

Postby Ostentatious » Tue Apr 18, 2017 4:36 pm

I don't have anything to say specifically about form 5329 but I have been using H&R block software for several years now and realized that in rare cases (i.e. cases that are do not affect a lot of filers), they have it wrong. it happened to me and they won't admit it. It took several months of getting them to see the error that IRS pointed out. Even their CPAs didn't seem to see the problem. In the long run, they sent me to one of the local offices. It was then that I got the tax preparers to recognize the problem. They eventually refunded all the fees to me and I still use the software to prepare my taxes but I print it out and check every line before submitting it.

Katietsu
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Re: HRBlock software: improper handling of 5329 waiver of penalty

Postby Katietsu » Wed Apr 19, 2017 7:58 pm

I am not sure that filing a 1040X is a good idea. You will have two versions of the same thing in the system. Hopefully, someone who has more experience with this issue will step in. I think I would contact the IRS about the original submission before sending the 1040X.

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Kevin M
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Re: HRBlock software: improper handling of 5329 waiver of penalty

Postby Kevin M » Thu Apr 20, 2017 12:08 pm

Katietsu wrote:I am not sure that filing a 1040X is a good idea. You will have two versions of the same thing in the system. Hopefully, someone who has more experience with this issue will step in. I think I would contact the IRS about the original submission before sending the 1040X.

Puzzling comment. This is exactly what 1040X is for, and when you file it, by definition you have "two versions of the same thing in the system".

If you look at Form 1040X, you'll see that there are columns for original amount, net change, and correct amount. So on 1040X, this shows up as a change on line 10, other taxes, and the revised Form 5329 also is submitted, since it's the only thing that changed other than the 1040.

In Part III of Form 1040X, Explanation of changes, we explained that the tax software did not follow the instructions for Form 5329, and that the revised version does follow the instructions. We also attached the explanation letter submitted with the original return. Seems very straightforward to me.

Will report back on how it works out.

Thanks for your comment,

Kevin
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