We had a customer today that informed us that the IRS is waiving any penalties for early withdrawals if the customer lives in an "impoverished" State (as in one of the 50 States).
I tried to find something on the IRS website without any luck.
Any one else hear of this?

That's a new on on me. The basis is probably some e-mail that they received.

Advice from AG EEEEEEEEEEEEEEEEEEEEEEEEE

I don't see how this information, whether true or not, would matter to you. You don't assess or collect tax penalties, the IRS does. You also shouldn't be giving tax advice (meaning if a client asks you whether or not they will have to pay taxes or a penalty on a distribution the answer should always be "seek the cousel of a qualified tax advisor").

Now if the client was trying to get you to waive an early withdrawl penalty that you assess on a product you offer; if the IRS ever went so far as to dictate what type of fees a bank can charge on it's products they would make sure that banks across the nation knew.

Qualified retirement plans may or may not contain language that allow for "hardship" distributions. There is no need for IRAs to contain parallel language because participants may withdraw their funds at any time.

Regardless, there would not be a waiver of the IRC premature distribution penalty unless the distribution met specific criteria applicable to the participant, not the rest of the state. Examples would be disability, significant medical expenses, unemployment benefits, etc.

Generally, when customers come up with stuff like this it's a good idea to ask for their source and tell them you will be glad to investigate further when they provide it...chasing rabbits is tiring.