Are Penalties and Interest added to the Additional Tax calculated on line 25 of form 5329? I hope this request for advice isn’t repetitious but I’m under the IRS gun and haven’t researched the last 7 months of Q&As. On 12/13/06 I wrote the underlined question in this forum and received the underlined answer. The was no mention of additional penalties and interest. Was this an oversight or is the IRS wrong? In December 2006 I removed the 2004 excess contribution, and sent the IRS completed 5329 forms for 2004 and 2005 along with checks for $188 for each year which the IRS cashed on 12/27/06. Since then it’s been all downhill. In June 2007 I got the IRS Taxpayer Advocate Service involved and yesterday they said I owe an additional $197 in penalties and interest! IRS is willing to waive the Late Filing Penalty (code 166) and the Failure to Pay Tax Penalty (code 276) but say they cannot waive the statutory interest (code 196) which is $66 so far and continuing to rise as we try to wrap this up. I’m ready to pay just to get out from under the IRS but my wife is in a similar fix and her interest will exceed mine as it goes back to 2003. And I’d like to know if the IRS is correct or not. [u]Question[/u]: In February 2004 I made a contribution for tax year 2004 to my Roth IRA. I became aware that it was an excess contribution in January 2006. I am over 70 and have had the Roth for over 5 years and filed my 2004 tax return before 4/15/05. Is it correct that a 6% penalty would be applied to the excess contribution on 10/15/05 for tax year 2004 and that another 6% penalty would be levied on 12/31/05 for tax year 2005. Are the subsequent penalties levied on 12/31? If so and I remove the 2004 excess contribution before 12/31/06 (but after 10/15/06) will I be able to avoid the 6% penalty for tax year 2006? [u]Answer[/u]: You are correct that you have already incurred the 2004 6% excess contribution penalty as well as the 2005 6% penalty. You can correct the excess by year end and avoid the penalty again for 2006. After the first penalty is incurred (10-15-05), the additional ones all accrue on 12/31.