Does a client face a penalty for early IRA withdrawal if they don't buy their first home in the same year as the withdrawal?

[jeanmarc]

I have a client that took an early withdrawal from their IRA for $69,000 to buy their first home. However, they became ill during the year and did not complete the purchase. The 1099-R was marked with a Distribution Code 1 - No known exception. And, if they CAN avoid penalty (I understand it's only on the first $10,000) do I simply enter that on a 5329-T, even though there is no home to report in the taxes?

[BobKamman]

No exception for stupid.  He didn't have to make the withdrawal until the closing date, or even 60 days before the closing date so that he could put it back in case the deal fell through.  In the alternative, he had 120 days to get better and close on a new deal. 

"(A) In general The term “qualified first-time homebuyer distribution” means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 120th day after the day on which such payment or distribution is received to pay qualified acquisition costs with respect to a principal residence of a first-time homebuyer who is such individual, the spouse of such individual, or any child, grandchild, or ancestor of such individual or the individual’s spouse."

[Just-Lisa-Now-]

If they didnt use it to purchase the house, no 5329 is involved.  Its all taxable and subject to penalty. 

I personally was audited in 2004 for using IRA money for first time home purchase and had to send all my closing docs showing that I really did buy a house...so it does happen!

[Taxprohere]

May be a long shot and this Revenue Procedure might provide relief if the TP 'would have' rolled it over if the house purchase fell through, could have resorted to that within 60 days, but delayed due to illness.  Some hurdles to meet, and needing to roll it over, and might be no excuse for waiting til now.

 https://www.irs.gov/pub/irs-drop/rp-20-46.pdf.