Is IRS now requiring you to pay Form 5329 penalties upfront even when requesting a waiver?

Thanks for clarifying! Do you know if the "RC" should be entered in the literal amount box (like where you'd normally put the dollar figure) or is there a separate field for requesting the waiver? Also, how detailed does the explanation statement need to be for the IRS to typically approve it?

For the "RC" code, you would enter it directly in the same box where you would normally enter the dollar amount of the penalty. It should be written as "RC" in that specific amount field on Form 5329 to indicate you're requesting a reasonable cause waiver. For the explanation statement, you'll want to be thorough but concise. Explain the circumstances that led to the excess contribution or distribution, why it was beyond your reasonable control, and the steps you've taken to correct the issue. Include any supporting documentation that backs up your explanation. Typically 1-2 pages is sufficient, but the quality of your explanation matters more than the length. Focus on demonstrating that you acted in good faith and that the error occurred despite your best efforts to comply with tax laws.

That sounds promising. Did taxr.ai charge extra for the Form 5329 help? I'm dealing with a $7,300 potential penalty and really don't want to pay it upfront if I don't have to. Does their system actually e-file the form with the waiver properly coded?

I'm skeptical about these online tax services handling complex situations correctly. How can you be sure they actually submitted everything right? Did you get any confirmation from the IRS that your waiver request was properly received? I've heard horror stories about people thinking their waivers were filed but then getting huge penalty bills months later.

Their pricing is all-inclusive based on your tax situation - there wasn't any extra charge specifically for Form 5329 help. It's all part of their comprehensive package. And yes, the system properly e-filed my return with the Form 5329 including the RC code and attached my reasonable cause statement. Regarding IRS confirmation, I received the standard IRS acceptance of my e-filed return, which included Form 5329. About 8 weeks later, I received official IRS correspondence accepting my waiver request. The system actually helped me craft a reasonable cause statement that addressed all the key points the IRS looks for in these situations, which I think made a big difference in getting approval.

How exactly does this work? I thought the IRS phone system was the same for everyone. Do they have some special connection that lets them bypass the queue? Seems weird that a third-party service could get through when regular people can't.

This sounds like snake oil to me. If the IRS phone lines are jammed, how could any service guarantee getting through? And even if you do reach someone, phone agents give incorrect information all the time. I wouldn't trust any verbal confirmation unless you get it in writing.

It's not a special connection - they use technology that navigates the IRS phone system and waits on hold for you. When an actual IRS agent answers, you get a callback to connect with them. It's the same queue everyone uses, but their system handles the waiting instead of you having to do it yourself. I was skeptical too, but it's legit. And you're right that verbal confirmations aren't always reliable, which is why I specifically asked the agent to document our conversation in my account notes. I also took detailed notes myself with the agent's ID number and timestamp. This isn't about bypassing the system - it's about not having to waste hours on hold just to get basic information.

That's a smart workaround! Have you actually tried this with H&R Block software? I'm wondering if it will still calculate my total tax correctly if I go this route or if I'll need to manually adjust the final numbers before mailing.

Yes, I've used this method before. The H&R Block software will still show the penalty amount in its internal calculations, but when you print the actual Form 5329, you can physically write "RC" in the penalty box before mailing. You'll need to manually adjust your total payment amount on Form 1040 to exclude the penalty amount that H&R Block included. Just make sure to double-check all your math when making these adjustments, and keep detailed records of how you calculated your final payment amount. Also remember to include a thorough reasonable cause statement explaining why you qualify for the waiver. The downside is you'll need to paper file, which means a much longer processing time, but it's better than paying a penalty you might not owe.

Is there any problem with filing different tax forms using different software? Like could I do most of my return in H&R Block but then do just the Form 5329 in FreeTaxUSA and combine them when I file?

I wouldn't recommend mixing different tax software for different forms on the same return. Each software package calculates interconnected values across multiple forms, and manually combining them could lead to calculation errors or inconsistencies that might trigger IRS notices. A better approach would be to complete your entire return in software that properly handles Form 5329 waivers (like FreeTaxUSA as mentioned earlier), or use the paper filing workaround with H&R Block where you manually override the penalty calculation. The risk of errors from mixing software outputs usually isn't worth the convenience.