IRS Guidance

Tax-Related Deadline Relief Granted for Alabama Disaster Victims

The IRS has issued news release AL-2019-01, announcing an extension of time to complete certain time-sensitive tax-related acts as a result of tornadoes, storms, and straight-line wind events in Alabama. At this time, the only area to which the relief applies is Lee County, but the IRS periodically updates the disaster relief to include other areas.

News release AL-2019-01 provides that certain tax-related acts with deadlines falling on or after March 3, 2019, and on or before July 31, 2019, are extended to July 31, 2019. It notes that this extension applies to IRA contributions, as well as to the numerous time-sensitive acts described in Treasury Regulation Section 301.7508A-1(c)(1). These acts include completion of rollovers,  recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under this regulation.

This relief applies specifically to residents of the identified area, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who is injured or killed as a result of the events is also entitled to deadline relief.

Affected taxpayers who reside or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 866-562-5227 to request relief.

IRS Letter Expands Circumstances When Employers May Recover HSA Contributions

The IRS has released for publication an information letter that provides details on circumstances allowing an employer to request the return of Health Savings Account (HSA) contributions made on behalf of its employees. The IRS describes in Information Letter 2018-0033 certain contribution recovery circumstances that go well beyond the previous guidance found in IRS Notice 2008-59, which has served as a primary source of information on HSA issues and administrative procedures.

Notice 2008-59

Notice 2008-59 described limited circumstances under which an employer may seek the return of HSA contributions by an HSA custodian or trustee. These limited circumstances included contributions made on behalf of employees who were never HSA-eligible, and contributions in excess of the annual statutory contribution limit.

Information Letter 2018-0033

The information letter lists the following additional circumstances as examples of errors that also may be corrected.

  • HSA contribution exceeded an employee’s payroll withholding election
  • Amount was mistakenly contributed to an employee due to an “incorrect spreadsheet” or “similar names … confused with one another”
  • Contribution was incorrectly entered by a payroll administrator (in-house or third-party)
  • Additional contribution was received due to a duplicate payroll file transmission
  • Over-contribution resulted from delayed processing of a payroll withholding change for an employee
  • Over-contribution resulted from disparity between elected annual contribution and actual number of pay periods
  • Incorrect contribution resulted from misplaced decimal point

As is evident in these itemized reasons, the IRS has now gone well beyond the limited circumstances for employer recoupment of HSA contributions that were authorized by Notice 2008-59, the most detailed guidance on the subject available prior to Information Letter 2018-0033.

While an Information Letter is not considered as elevated in the IRS guidance hierarchy as a notice, revenue ruling, or revenue procedure, it nevertheless can be considered to express the agency’s intent for how other guidance—such as Notice 2008-59—may be interpreted. Perhaps most telling in the letter is the statement that the previously-issued Notice 2008-59 “was not intended to provide an exclusive set of circumstances in which an employer may request the return of contributed amounts.”


Updated IRA Publication Notes Conversion Changes and Revised Form 1040 Reporting

The IRS has released the 2018 version of Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs). This publication describes taxpayer rules for IRA distributions and is one of two IRA-specific IRS publications—Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), is the second. The 2018 version of Publication 590-A was released in December 2018.

The What’s New section of Publication 590-B notes that it is no longer possible to recharacterize a Roth IRA conversion or a rollover of non-Roth employer-sponsored retirement plan assets to a Roth IRA. It also notes that Form 1040, U.S. Individual Income Tax Return, has been redesigned, and that Forms 1040A and 1040-EZ and some miscellaneous itemized tax deductions are no longer available.

Rules associated with IRA-based employer-sponsored retirement plans, including SIMPLE IRA or SEP plans, generally are not part of these publications, but are covered in Publication 560, Retirement Plans for Small Business.

IRS Releases Guidance on Tax Reform’s Pass-Through Income Provisions

The Treasury Department and Internal Revenue Service have issued several elements of guidance for pass-through income taxation provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. Many of the legislation’s provisions took effect for 2018 tax years. In addition to significantly reducing the corporate tax rate, TCJA provided special tax treatment for certain taxpayers who receive what is known as “pass-through income.” This includes sole proprietors and partners. Also some S-Corporation businesses generate pass-through income.

Pass-through income is “passed through” to a recipient’s individual income tax return and taxed at their individual tax rate, which under changes wrought by TCJA may now range from 10 to 37 percent. This taxable pass-through income may be reduced, however, by a Qualified Business Income Deduction. Calculation of this deduction is highly complex, but considering several potential variables, including payment of W-2 income to employees, it generally is not greater than 20 percent of Qualified Business Income. (While W-2 income does have a bearing on the magnitude of a retirement plan contribution in many cases, it has particular relevance in determining the general business income deduction available to pass-through businesses.)

Of significant concern during the TCJA legislative process was whether new pass-through income taxation rules might create a disincentive for those who receive such income to establish—or continue to maintain—an employer-sponsored retirement plan. By all indications, such disincentives have not materialized. In fact, under certain circumstances, it can be highly advantageous for a pass-through business owner to establish and contribute to a retirement plan, and thereby qualify for a greater Qualified Business Income Deduction.

Following are four pieces of guidance released by the IRS affecting pass-through income taxation. Note that the final and proposed regulations below are released in pre-published form, and minor editorial changes could be made when the final versions are released in the Federal Register (no publication date has been announced).

Final Regulations on Qualified Business Income Deduction
These final regulations provide guidance on the deduction for Qualified Business Income under TCJA’s new pass-through taxation rules. They are effective upon publication in the Federal Register, and generally apply to taxable years ending after their publication. However, the guidance further states that they—or the proposed version issued in August of 2018—generally can be relied upon for tax years ending in calendar year 2018.

Proposed Regulations for Those With Mutual Fund or Trust Interests, etc.
These new proposed regulations provide guidance on deductions available to pass-through income recipients with interests in certain regulated investment companies (mutual funds) or certain trusts, and for certain “previously suspended losses” considered Qualified Business Income. They amend certain elements of the August 2018 proposed regulations and provide anti-avoidance guidance relevant to applying TCJA’s new pass-through income taxation rules. These new proposed regulations generally are applicable for taxable years ending after their publication in the Federal Register, but may be relied upon until finalized. Public comments on these new proposed regulations and requests for a public hearing must be received within 60 days of their publication in the Federal Register.

IRS Revenue Procedure 2019-11
Revenue procedure 2019-11 provides a method for calculating W-2 wages paid by an employer—a factor that influences taxable Qualified Business Income. It generally is effective for 2018 and later tax years.

IRS Notice 2019-07
Notice 2019-07 is narrow, special-purpose guidance that addresses real estate rentals that may qualify as trades or businesses for pass-through income taxation purposes. It is effective for 2018 and later tax years.

2019 Form 8950 Instructions Updated to Match New EPCRS Guidance

The IRS has released a January 2019 version of the Instructions for Form 8950, Application for Voluntary Correction Program (VCP) Under the Employee Plans Compliance Resolution System (EPCRS).

This form is used by retirement plans that have elected to apply to the IRS requesting written approval of a correction under VCP. With the release of Revenue Procedure 2018-52 early in October, the IRS updated the EPCRS to require that, as of April 1, 2019, all VCP submissions (including Form 8950) and payments must be made electronically at the website.

IRS Releases 2019 Form 1099-R and 5498 Reporting Instruction

The IRS has released the 2019 Instructions for Forms 1099-R and 5498. These detailed instructions describe the reporting requirements for IRA and employer-sponsored retirement plan distributions, IRA contributions, rollovers, conversions, recharacterizations, and fair market values.

This follows the 2019 Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and 2019 Form 5498, IRA Contribution Information, release earlier this month.

In addition to updating years, deadlines, figures, and guidance references, here are a few notable changes.

  • Information on how to report distributions and late rollovers (post 60-day rollovers) of retirement plan loan offset amounts that result from severance from employment or retirement plan termination.
  • Information on how to report IRA payments to state unclaimed property funds (IRA escheatment) on Form 1099-R, applicable on or after January 1, 2019.
  • A note that Forms 1099-R and 5498 can now be completed online to satisfy required reporting to recipients.

IRS Released 2019 Retirement Reporting Forms and Redesigned 2018 Tax Forms

The IRS has released the 2019 versions of Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc., and Form 5498, IRA Contribution Information, as well as the 2018 redesigned Form 1040, U.S. Individual Income Tax Return, and related schedules.

Forms 1099-R and 5498

Form 1099-R reports distributions from IRAs and employer-sponsored retirement plans, and direct rollovers between employer plans and IRAs. Form 5498 reports annual IRA, SEP, or SIMPLE IRA plan contributions, as well as rollovers, fair market value, Roth IRA conversions, if required minimum distributions are due for Traditional and SIMPLE IRA owners, and certain other information. The IRS has not yet released the separate 2019 Instructions for Forms 1099-R and 5498.

Form 1040

The IRS has released the 2018 version of Form 1040, U.S. Individual Income Tax Return, along with the 2018 Form 1040 Instructions and other accompanying schedules. Many adjustments to taxable income were formerly accounted for on a comprehensive Form 1040 in previous years, but the IRS has transitioned to a simpler basic Form 1040 with various additional schedules. The instructions indicate that Forms 1040A and 1040-EZ are no longer available for 2018 income tax reporting, and individuals who filed one of these forms in the past may now file the Form 1040.

One retirement-related change on the 2018 Form 1040 is that IRA, pension, and annuity payments, including rollovers, will be reported on Lines 4a and 4b, instead of the former Lines 15 and 16.

The 2018 Form 1040 is supplemented with six new schedules, and the schedule instructions are contained in the Form 1040 Instructions. The following new schedules will be used to claim certain additional income, tax credits, and taxes owed for retirement and other savings accounts.

  • Schedule 1, Additional Income and Adjustments to Income, will be used to claim, among other things, tax deductions for IRAs and health savings accounts (HSAs).
  • Schedule 3, Nonrefundable Credits, will be used to claim, among other things, education credits, the IRA and retirement plan savings contribution credit (saver’s credit), and certain other credits.
  • Schedule 4, Other Taxes, will be used to claim, among other things, the additional penalty taxes owed for the early distributions and excess contributions for IRAs, retirement plans, Coverdell ESAs, Archer MSAs, HSAs, and ABLE accounts.

Retirement Spotlight: IRS Moves to Mandatory Electronic Submission for Retirement Plan VCP Corrections

Employers whose retirement plans have compliance issues in need of correction through the IRS’ Voluntary Correction Program (VCP) will now have a few new and different hoops to jump through to get the IRS’ stamp of approval. The IRS has modified its VCP procedures under the Employee Plans Compliance Resolution System (EPCRS) with the release of Revenue Procedure 2018-52. It requires that submissions and VCP fee payments be made electronically on the website starting April 1, 2019.


Submitting and Paying Online

Corrections through the new procedure may be applied for beginning January 1, 2019.

  • Transition period: From January 1, 2019, through March 31, 2019, the IRS will accept either electronic submissions through or traditional paper submissions. Paper submissions that are postmarked on or after April 1, 2019, will not be accepted.
  • Starting April 1st: All VCP submissions made on or after this date must be made through

These payment rules also apply to plans assessed sanctions through the IRS’ Audit Closing Agreement Program (Audit CAP). Plans that correct failures using the Self-Correction Program (SCP) are not required to submit to the IRS or pay a fee.


A 15MB file size restriction is imposed on submissions. Submissions typically fall in the 5MB to 10MB range, but information for a submission that is above the 15MB threshold must be faxed to the IRS. Thus, a submission that is above the size restriction may need to be broken into two parts—one 15MB file sent to and the rest of the information above 15MB faxed to the IRS.


Other EPCRS Changes

Although the major change lies in how VCP corrections are submitted, Revenue Procedure 2018-52 also contains several other noteworthy updates to the IRS’ EPCRS.

  • The reference to the IRS Letter Forwarding Program as an option for locating participants and beneficiaries is removed. (Though, that service under the program was technically discontinued years ago.)
  • If the IRS deems a VCP submission deficient or determines that issuing a compliance statement approving the correction is inappropriate, it can refuse to issue a compliance statement and may close the correction case, possibly without issuing a refund for the VCP fee. The previous IRS approach was to work with plans that made incomplete submissions in order to gather the required information so that the submission could be approved.
  • A new Penalty of Perjury statement that includes a plan sponsor signature must be included with submissions. This information previously was included on Form 8950, Application for Voluntary Correction Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS).
  • Form 5265, which is an acknowledgement letter for Form 8950 submissions, will no longer be filed with the submission.
  • Corrective amendments detailed in the revenue procedure now also apply to pre-approved 403(b) plans.


More to Come

Several outstanding questions remain as 2019 approaches. Details at are scarce at this time. For example, the revenue procedure does not state what plans should do if the submission is rejected—whether a second submission and fee would be required.


It is clear, however, that effective April 1, 2019, the VCP will become almost exclusively digital. The website is active as it is used for other payment purposes as well, but as of this writing, the retirement plan correction information was not yet available. Watch Industry & Regulatory News as additional guidance becomes available.


IRS Explains Reliance on Opinion and Advisory Letters for 403(b) Plans

The IRS has provided FAQs at its website that explain opinion and advisory letter reliance regarding its relatively new program under which certain employers may establish 403(b) plans using a pre-approved plan document.

Because the IRS generally is no longer issuing rulings or determination letters on individually designed plans, the importance of pre-approved plans has increased. 403(b) plans can be established as prototype or volume submitter plans.

The FAQs describe eligible employers, what opinion and advisory letters are, and the reliance on an IRS opinion or advisory letter.

IRS Updates Acts that May Be Postponed Due to Disaster, Armed Forces Service

The IRS released an updated list of tax-related time-sensitive acts that may be postponed due to federally-declared disasters or service in the Armed Forces in Revenue Procedure 2018-58.

The revenue procedure itself does not provide for any postponements. Instead, it states that postponements under Internal Revenue Code section 7508A (referring to disasters) are contingent on IRS notices or other guidance, but that postponements of acts listed under Internal Revenue Code section 7508 (referring to service in the Armed Forces) is allowed regardless of whether the IRS issues notices or other guidance. As the regulations stand now, when an individual qualifies for relief by virtue of serving in the Armed Forces in a combat zone, the time for performing tax-related acts is not postponed. So, Revenue Procedure 2018-58 contains a list of these acts, so that individuals serving in combat zones may also receive a postponement.

A partial list of notable acts that are cited in the revenue procedure follows.


Business and Individual Tax Issues

  • Indirect rollover timing (60-day requirement) from 529 plans, ABLE accounts, Coverdell ESAs
  • Distribution of excess contributions from 529 plans
  • Filing of Form 5498-QA with the IRS
  • Distribution of excess contributions from Coverdell ESAs
  • Filing of Form 5498-ESA with the IRS


Employee Benefit Issues

  • Timing requirements for loan repayments
  • Substantially equal periodic payments timing
  • IRA contribution timing
  • Indirect rollover timing (60-day requirement) from Archer MSAs, HSAs, and qualified retirement plans
  • Filing of Form 5498-SA with the IRS
  • RMDs from qualified plans
  • Distribution of qualified plan excess deferrals, excess contributions, and excess aggregate contributions
  • Plan loan offset timing
  • Qualified plan, SEP, and SIMPLE IRA contribution deadlines
  • Filing of Form 5498 with the IRS
  • Recharacterization deadlines/timing
  • Permissible withdrawal timing for EACAs and QACAs
  • Distribution of IRA excesses
  • Form 5500, 5500-SF, Form 5500-EZ, and Form 8955-SSA filing deadlines