I have never known the IRS to forgive this penalty ... but agents have some amount of flexibility. It is remotely possible that you'll find one sufficiently sympathetic. From their perspective though, they've heard a lot of excuses about why penalties shouldn't be owed, and not all were honest.

Best idea would be for you to list dates, treatments, events that would have affected your life and made you less likely to worry about the tax consequences. The IRS loves facts.

Should I call the IRS to let them know ahead of time, or should I wait to let them figure it out? I will get a 1099 in the mail next year, I would think. I think I should just leave it alone. Maybe they won't notice. Thoughts? This better be confidential! Please send me something to say it is, for heaven's sake!

As far as I can tell, any "indirect" rollover (where the taxpayer holds the money for some period of time) gets questioned, and the taxpayer has to show where the funds were finally deposited and when.

It typically takes the IRS 15-18 months to raise this inquiry.

The IRS doesn't have to troll the internet to find stuff like this, their computers automatically put out the inquiry emails. They look for the bigger stuff, like scams and schemes, not individuals.

Expert 703 answered in a timely fashion, and was the only person who did answer.