IRS

IRS Priority Guidance Plan Includes Retirement Items

The IRS has issued its initial 2021-2022 Priority Guidance Plan, in which it describes guidance projects in the current fiscal year. Many items in the plan have appeared in prior years’ Priority Guidance Plans. A number of the guidance items deal with retirement savings arrangements, including the following.

  • Guidance related to several IRS tax-exempt and government entities programs, including the EPCRS, pre-approved plan, and determination letter programs
  • Regulations and guidance relating to the 10 percent early distribution tax
  • Comprehensive IRA regulations
  • Final regulations on normal retirement age under governmental plans (proposed regulations issued in January 2016)
  • Regulations and guidance updating electronic delivery rules for providing applicable notices and making participant elections
  • Regulations relating to SECURE Act modifications, including required minimum distributions and other rules for 401(k) plans
  • Guidance on student loan payments and their interplay with qualified retirement plans and 403(b) plans
  • Regulations on closed defined benefit plans (proposed regulations issued in January 2016)
  • Guidance on missing participants and uncashed checks
  • Regulations on the exception to the unified plan rule for Internal Revenue Code Section 413(e) multiple employer plans (proposed regulations issued in July 2019)
  • Regulations on the definition of “governmental plan”
  • Final regulations updating minimum-present-value requirements for defined benefit pension plans (proposed regulations issued in November 2016)
  • Regulations on mortality tables to determine present value for single-employer defined benefit pension plans
  • Guidance implementing changes and relief provided under the American Rescue Plan Act of 2021 for defined benefit plans
  • Final regulations for withholding on distributions when payments are made to a non-U.S. address (proposed regulations issued in May 2019)
  • Regulations relating to the Section 6057 reporting requirements (proposed regulations issued in June 2012)
  • Guidance updating electronic filing requirements as required by the Taxpayer First Act

IRS Provides Amendment Guidance

The IRS has released Revenue Procedure 2021-37, providing procedures for the issuance of opinion letters and the timing requirements of remedial amendment periods for Cycle 2 approvals of 403(b) plans. The guidance aligns the 403(b) pre-approval process with the 401(a) process in several ways.

  • Replaces the prototype and volume submitter programs with a single opinion letter program
  • Provides that the IRS will issue a Cumulative List of Changes identifying requirements that will be considered in reviewing plans submitted for Cycle 2
  • Creates a determination letter program using Form 5307 for limited circumstances
  • Provides details on the system of remedial amendment periods that follows the initial remedial amendment period

The submission period for on-cycle applications for Cycle 2 opinion letters starts on May 2, 2022, and ends on May 1, 2023. The deadline to adopt interim amendments for most 403(b) plans will be the end of the second calendar year following the calendar year in which the change is effective.

The IRS simultaneously issued Revenue Procedure 2021-38, whereby the interim amendment deadline for pre-approved plans qualified under IRC 401(a) will similarly be the end of the second calendar year following the calendar year in which the change is effective. Employers are no longer required to consider their tax-filing deadline in determining the date by which the interim amendment must be adopted. The new deadline is applicable to disqualifying provisions that are effective after December 31, 2020.

 


IRS Issues Deadline Relief for California Wildfire Victims

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for California wildfire victims. The tax relief postpones various tax filing and payment deadlines that began on July 14, 2021. Affected individuals and households that reside or have a business in Lassen, Nevada, Placer, and Plumas counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after July 14, 2021, and before November 15, 2021, will have until November 15, 2021, to complete the acts. This includes filing of the Form 5500 series returns that are required to be filed on or after July 14, 2021, and before November 15, 2021.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS at 866-562-5227 to request relief.

 


IRS Issues Deadline Relief for Tennessee Severe Storms and Flooding Victims

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for Tennessee victims of severe storms and flooding. The tax relief postpones various tax filing and payment deadlines that began on August 21, 2021. Affected individuals and households that reside or have a business in Dickson, Hickman, Houston, and Humphreys counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after August 21, 2021, and before January 3, 2022, will have until January 3, 2022, to complete the acts. This includes filing of the Form 5500 series returns that are required to be filed on or after August 21, 2021, and before January 3, 2022.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS at 866-562-5227 to request relief.


Retirement Spotlight: IRS Finalizes Mandatory 60-Day Postponement Period for Federally Declared Disasters

The average number of natural disasters continues to rise. As a result, Congress and the IRS have tried to keep pace by providing relief for those affected by major disasters and emergencies. In December 2019, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 amended Internal Revenue Code (IRC) Sec. 7508A by requiring a new mandatory 60-day postponement period for certain tax-related acts following a federally declared disaster. To help clarify the new rule, the IRS issued final regulations in June 2021. The regulations 1) explain how the new mandatory 60-day postponement period is determined, and 2) clarify how the term “federally declared disaster” is defined under IRC Sec.165.

Are there changes between the proposed and final regulations?

The final regulations are almost identical to the proposed regulations. Following the release of the proposed regulations, the IRS received several comments that suggested additional changes. In response to these requested changes, the IRS modified an example in the final regulations. The IRS made the change to clarify how the mandatory 60-day postponement period is calculated in the case of multiple disaster declarations. The other minor changes contained in the final regulations corrected typographical errors found within the proposed regulations.

The rest of this article will summarize the practical implications of the final regulations. For a more detailed analysis, please refer to the previous Retirement Spotlight, which was published in February 2021 when the IRS released the proposed regulations.

What is a “federally declared disaster”?

Similar to the proposed regulations, the final regulations do not change the definition of “federally declared disaster.” Instead, the regulations clarify the definition under IRC Sec. 165 to include both a major disaster declared under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) and an emergency declared under section 501 of the Stafford Act. The IRS made this change to address the terminology differences between IRC Sec. 165 and the Stafford Act. (IRC Sec. 165 used the term “federally declared disaster”; the Stafford Act uses the terms “emergency,” “disaster,” and “major disaster.”)

Who can take advantage of the mandatory 60-day postponement period?

This relief is available to certain individuals affected by federally declared disasters that occur on or after December 21, 2019, including

  • individuals who reside in the federally declared disaster area,
  • individuals who are injured in the disaster area,
  • individuals who are completing tax-related acts on behalf of those killed in the disaster area,
  • individuals whose principal place of business is in the disaster area,
  • relief workers who provide assistance to affected individuals in the disaster area, and
  • individuals whose tax records are located in the disaster area.

Which tax-related acts can be postponed?

The tax-related acts covered by this guidance are generally defined in IRC Secs.7508 and 7508A, Revenue Procedure 2018-58, and in Treasury Regulations. When a disaster occurs, the IRS announces the available relief in news releases that describe the affected area and the length of the deadline postponement. Examples of tax-related acts that may be postponed include

  • making IRA or employer plan contributions,
  • removing excess IRA contributions,
  • recharacterizing IRA contributions,
  • filing Form 5500,
  • making loan payments, and
  • completing rollover contributions.

When does the postponement period begin and end?

The mandatory 60-day postponement period generally begins on the earliest “incident date” specified in a Federal Emergency Management Agency (FEMA) disaster declaration and ends 60 days after the latest incident date.

Example: A hurricane batters the coast of Florida for several days. FEMA announces a disaster declaration and specifies that the earliest incident date for the affected counties is August 15. The latest incident date (when the flooding ends) is August 19. The deadline postponement begins on August 15 and ends 60 days from August 19.

While the 60-day postponement period guarantees a minimum time frame to complete certain tax-related acts, the IRS already had the authority under IRC Sec. 7508A to extend any applicable tax-related deadlines for up to one year following presidentially declared disasters, terroristic actions, or military actions. Although the IRS has typically provided 120-day extensions, some have been less.

The mandatory 60-day postponement period will not apply in certain situations. For example, the final regulations state that if the IRS does not postpone a tax-related act, then the act cannot be delayed under the mandatory 60-day postponement period. In addition, the mandatory postponement period will not apply if FEMA does not state specific incident dates. Instead, the IRS may independently postpone certain tax-related acts for up to one year.

When do the final regulations become effective?

The final regulations became effective on June 11, 2021, but there are separate applicability dates for changes made to IRC Secs. 7508A and 165. The clarifications to the new 60-day postponement period under IRC Sec. 7508A apply to disasters declared on or after December 21, 2019. The changes to the federally declared disaster definition under IRC Sec. 165 became applicable on June 11, 2021.

How do the final regulations affect taxpayers?

Ultimately, the final regulations didn’t really change the type of disaster relief that will be available or how the public will learn of that relief. Although certain eligible individuals may now have a guaranteed minimum 60-day postponement period, the IRS has already been postponing deadlines for more than 60 days. Taxpayers and businesses should still refer to the IRS’s website for the latest disaster relief information. And as always, visit ascensus.com for the latest news and developments.

Click here for a printable version of this issue of the Retirement Spotlight.


IRS Issues Final Regulations for Mandatory Deadline Postponements Related to Federally Declared Disasters

The IRS has released final regulations regarding the mandatory 60-day postponement of deadlines for certain time-sensitive, tax-related acts in circumstances of federally declared disasters, implemented under the Further Consolidated Appropriations Act of 2020.

The tax-related acts covered by this guidance are defined in Internal Revenue Code Section 7508A. This is the authority cited for postponement of deadlines in cases of localized disaster declarations. Such localized relief is announced by the IRS in news release form, describing the area affected—generally on a county-by-county basis—and describing the length of the deadline postponements.

The final regulations clarify the definition of “federally declared disaster” for purposes of deadline extensions to include both a major disaster declared under section 401 of the Stafford Act and an emergency declared under section 501 of the Stafford Act.

Additionally, the guidance provides details of the 60-day mandatory postponement period.

  • If the Treasury Secretary does not exercise her discretion to postpone a time-sensitive act, it cannot be postponed under the mandatory extension.
  • Time-sensitive acts specifically postponed include making contributions to a qualified retirement plan or IRA, withdrawing excess IRA contributions, recharacterizing IRA contributions, and completing rollovers.
  • The mandatory 60-day postponement period begins on the earliest incident date specified in a disaster declaration and ends on the date that is 60 days after the latest incident date.
  • In no event will the mandatory 60-day postponement period exceed one year.
  • The extension will not apply when there is no specified initial incident date.

The definition of “federally declared disaster” is applicable today with final publication in the Federal Register. The clarifications to the mandatory 60-day postponement period apply to disasters declared on or after December 21, 2019.


IRS Provides Additional COBRA Premium Subsidy Guidance

On May 18, the IRS issued Notice 2021-31, which provides guidance affecting COBRA premium assistance pursuant to the American Rescue Plan Act of 2021 (ARPA). The notice includes 86 questions that clarify the application of the premium assistance to group health plans, employee eligibility, determination of the premium subsidy amount, and the advance payment or quarterly offset of taxes for employers.

 

Eligibility (Questions 1–20)

Notice 2021-31 clarifies that an assistance eligible individual (AEI) is an individual who experiences an original qualifying event of reduction in hours or involuntary termination of employment. If the AEI experiences an extension of COBRA continuation coverage period due to disability, a second qualifying event, or state mini-COBRA extension, he will be eligible for the subsidy to the extent that his additional period of coverage falls during the subsidy period. Finally, an AEI is no longer eligible for premium assistance if he is eligible for another group health plan or Medicare. An AEI is considered eligible for another group health plan if enrolled or eligible to enroll during the period April 1 to September 30, 2021.

Operationally, employers are not required to obtain an attestation or certification from the employee’s eligibility status to provide premium assistance. However, employers are required to maintain information used to make a determination, including any attestations or certification, if applicable.

 

Reduction in Hours (Questions 21–23)

An employee’s reduction in hours causes the qualified beneficiary to be eligible for premium assistance, regardless of whether the reduction in hours is voluntary or involuntary. In addition, furlough or strikes generally constitute reduction-in-hour events.

 

Involuntary Termination of Employment (Questions 24–34)

These questions and answers provide examples of what is and what is not considered an involuntary termination. In general, involuntary termination is the severance from employment due to the independent unilateral exercise of authority by an employer where the employee was otherwise willing to continue employment.

The following constitute involuntary termination.

  • Employer’s action to terminate employment because of the employee’s absence from work due to illness or disability
  • Termination for cause unless gross misconduct
  • Resignation due to material change in the geographic location of employment
  • Window termination (i.e., employees facing impending termination are offered a severance to terminate in a specified period of time)
  • Employee-initiated termination because of concerns about workplace safety if the circumstances amounted to constructive termination (i.e., the employer failed to provide reasonable accommodation)
  • Employee-initiated termination in response to reduction in hours
  • Failure of an employer to renew an employment contract

The following constitute voluntary termination.

  • Retirement
  • Employee-initiated termination due to concerns about workplace safety
  • Employee-initiated termination because child is unable to attend school or childcare facility because of COVID-19. However, if the leave is temporary and an employee-employer relationship exists, the qualifying event may be reduction in hours
  • Death of an employee

 

Coverage Eligible for Premium Assistance (Questions 35–42)

Premium assistance is available for group health plan coverage that includes medical, vision, or dental-only plans, health reimbursement arrangement (whether integrated or stand-alone), and retiree health plans (if available to active employees that are similarly situated). The premium assistance is not available for qualified small employer health reimbursement arrangements or health flexible spending arrangements.

 

Premium Assistance Period (Questions 43–46)

The premium assistance is available for the period April 1 to September 30, 2021, and the employee is eligible to receive premium assistance beginning the first period of coverage beginning on or after April 1, 2021. However, an employee is not required to elect the first period of coverage beginning on or after April 1, 2021, and may instead choose any prospective period of coverage within the available period (April 1 to September 30, 2021).

 

End of COBRA Premium Assistance Period (Questions 47–50)

COBRA coverage will continue for the AEI at the end of the subsidy period, but premiums must be timely paid for subsequent periods of coverage.

 

Extended Election Period (Questions 51–55)

An AEI will be able to have a second opportunity to elect coverage during the extended election period even if she had previously declined certain coverage while electing others (e.g., enrolling in continuation coverage for dental and vision but declining health coverage). Or if an employee had elected self-only continuation coverage, her spouse or dependent child, who would also qualify as an AEI, would also have a second election opportunity.

 

Extensions Under the Emergency Relief Notices (Questions 56–59)

Individuals must elect or decline retroactive coverage within 60 days of receipt of the election notice. Individuals will not have a second opportunity to elect coverage. The one-year extended period due to the pandemic continues to apply for premium payment outside the April 1 to September 30, 2021, period.

 

Payments to Insurers Under Federal COBRA (Question 60)

Insurers may be liable for excise taxes if they fail to treat an AEI as having made a full payment of the premium. The employer will be responsible for making a payment to the insurance carrier.

 

Comparable State Continuation Coverage (Questions 61–62)

State continuation programs will not fail to provide comparable coverage under ARPA if the programs provide different maximum periods of coverage, different qualifying events, or different qualified beneficiaries. However, a qualified beneficiary is eligible only if the individual meets the definition under COBRA.

 

Calculation of Premium Assistance (Questions 63–70)

The credit for the premium assistance is equal to the amount of COBRA premium costs not paid by the AEI plus any administrative costs otherwise allowed (generally, 102 percent). Notice 2021-31 clarifies that an amount subsidized by the employer would not be eligible for a credit.

 

Claiming the COBRA Premium Assistance Credit (Questions 71–86)

Regarding payment of the premium assistance to the plan sponsor, Notice 2021-31 clarifies that employers are eligible for the credit if subject to COBRA or self-insured and insurers are eligible for the credit for insured plans subject to mini-COBRA.

Notice 2021-31 also clarifies that the IRS and the Department of the Treasury are aware of additional issues concerning COBRA premium assistance that have not been addressed. They are continuing to consider the issues and may issue further subsequent guidance.


IRS Issues Deadline Relief for Alabama Victims of Severe Storms and Tornadoes

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for Alabama victims of severe storms, straight-line winds, and tornadoes. The tax relief postpones various tax filing and payment deadlines that occurred starting on March 25. The areas included in the relief are Bibb, Calhoun, Clay, Hale, Jefferson, Perry, Randolph, and Shelby counties.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, and making retirement plan loan payments.

Affected taxpayers with a covered deadline on or after March 25, 2021, and before August 2, 2021, will have until August 2, 2021, to complete the act(s). This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until August 2 to make 2020 IRA contributions.

“Affected taxpayer” automatically includes any individuals who live, and any businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS at 866-562-5227 to request relief.


IRS Issues Deadline Relief for Kentucky Severe Storms Victims

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for Kentucky victims of severe storms, flooding, landslides, and mudslides. The tax relief postpones various tax filing and payment deadlines that occurred starting on February 27. The areas included in the relief are Boyd, Breathitt, Carter, Casey, Clay, Cumberland, Elliott, Estill, Floyd, Franklin, Jackson, Johnson, Knott, Knox, Lawrence, Lee, Lincoln, Magoffin, Marion, Martin, Mason, Morgan, Ohio, Pike, Powell, Rockcastle, and Wolfe counties.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, and making retirement plan loan payments.

Affected taxpayers with a covered deadline on or after February 27, 2021, and before June 30, 2021, will have until June 30, 2021, to complete the act(s). This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until June 30 to make 2020 IRA contributions.


IRS Confirms Tax Filing Extension and Announces Postponed IRA, HSA Contribution Deadline

The IRS has issued Notice 2021-21, in which the IRS makes official the previously announced delay of the April 15, 2021 federal income tax filing due date for individuals for the 2020 tax year to May 17, 2021. This delay is a result of the ongoing COVID-19 Emergency Declaration issued in March 2020.

The tax return due date for an affected taxpayer is automatically postponed to May 17, 2021. An “affected taxpayer” is defined as any person with a federal income tax return or income tax payment filed on a Form 1040, U.S. Individual Income Tax Return, series with an original due date of April 15, 2021. No form, including IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, is required to obtain this relief, and it applies to all schedules, returns, and other forms that are attachments to the Form 1040 series or required to be filed by the Form 1040 series due date.

In conjunction with the Form 1040 series delay, Notice 2021-21 also automatically postpones to May 17, 2021,

  • the time for affected taxpayers to make 2020 contributions to their Traditional IRAs and Roth IRAs, health savings accounts (HSAs), Archer medical savings accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs), and
  • the time for reporting and payment of the 10 percent additional tax on amounts includible in gross income from 2020 IRA or employer-based retirement plan distributions.

The due date for filing and furnishing forms in the Form 5498, IRA Contribution Information, series is postponed to June 30, 2021.

This relief provided for filing federal income tax returns and paying federal income taxes does not apply to businesses or any other type of taxpayer who files federal income tax returns on forms other than the Form 1040 series. Notice 2021-21 further states that “no extension is provided in this notice for the payment or deposit of any other type of federal tax, including federal estimated income tax payments, or for the filing of any federal return other than the Form 1040 series and the Form 5498 series for the 2020 taxable year.”

While this guidance only applies to the filing of federal tax returns, many states have issued similar delays. Individuals are advised to review their state and local regulations to ensure compliance with all 2020 filing deadlines.