The penalty that applies to an IRA trustee or custodian for failing to provide a required minimum distribution (RMD) notice, as required by IRS Notice 2002-27, is “$50 for each failure unless it is shown that such failure is due to reasonable cause.” 26 USC 6693(a)(1). If the IRA account holders did not withdraw all or part of their RMDs, a 50% excise tax applies to the undistributed portions of their RMDs. IRS Publication 590b, Excess Accumulations (Insufficient Distributions).

We recommend alerting those customers who did not receive RMDs and informing them that they may request a waiver of the excise tax (and that you will assist them in preparing their waiver requests.) They should request the waiver when reporting the excess accumulations with their annual tax returns on IRS Form 5329. The IRS Form 5329 Instructions explain the waiver process as follows:

Waiver of tax.   The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.

1.         Complete lines 50 and 51 as instructed.

2.         Enter “RC” and the amount you want waived in parentheses on the dotted line next to line 52. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 52.

3.         Complete line 53 as instructed. You must pay any tax due that is reported on line 53.

The IRS will review the information you provide and decide whether to grant your request for a waiver.

To our knowledge, your institution is not required to pay the excise tax that your customers may incur as a result of your failure to provide them with RMD notices, but it may be prudent to offer them some sort of assistance and relief as an accommodation.