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  1. In the case of a 2020 regular taxable ESOP distribution with NUA reported in box 6 of Form 1099-R, if you self-certify for COVID relief from taxation, Form 8915-E does not allow you to claim beneficial capital gains tax treatment on your COVID distribution. Capital gains on an ESOP distribution with NUA are normally reported on Form 4972, line 6, and the instructions for Form 8915-E (page 2, left column at the very bottom in the "Note") specifically mentions no capital gains from Form 4972 are allowed. The link to IRS Form 4972 and its instructions are here: Form 4972 and Instructions. Form 8915-E and instructions can be found here: Form 8915-E Instructions; Form 8915-E Accordingly, from what I can tell, COVID impacted recipients of 2020 ESOP distributions with NUA will have a choice to make with respect to claiming COVID relief on Form 8915-E: 1) file Form 8915-E and forego capital gain treatment, but pick up the waiver of the 10% early withdrawal excise tax (plus get 3-year ordinary income tax spread & ability to rollover); or 2) don’t file Form 8915-E for COVID relief and keep capital gain treatment, but pay the 10% excise tax if applicable (and lose the 3-year tax spread & ability to rollover). In my opinion, if the CARES Act is going to allow taxes to be spread over three years, then spread the taxes normally due over three years. I doubt the CARES Act contemplated the IRS recharacterizing capital gains into ordinary income as a consequence of getting COVID relief. If any income tax preparers out there can think of a workaround like attaching a Form 8275 statement or similar, please let me know. I’ve complained to the ESOP community and LinkedIn. I’m not sure if anything will happen, but the IRS makes mistakes now and then, and ESOPs are complicated, even for the IRS. Alternatively, the CARES Act didn't address this issue and it would take an act of Congress to fix. Any thoughts?
  2. An employer provides for loan deferment for qualified individuals under the CARES Act. If a participant has already defaulted on their loan but later becomes a qualified individual, does the employer still have to give that participant the option to defer the loan (i.e., reverse the loan default)?
  3. Good afternoon. Just when I think I understand the CARES Act . . . I cannot find a thread that discusses a loan offset under the following situation, though I was sure I had read one. Please advise me of the thread if one already exists. The participant had an outstanding loan and was up-to-date with his loan repayments at March 27, 2020. The Plan implemented the CRD and CARES Act loan provisions. Loan repayments were suspended until January 1, 2021, at which time they are re-amortized and resumed. The participant is a qualified individual and stopped making loan payments when the Plan offered the loan suspension. The Plan permits participants to continue making loan repayments after termination of employment. The Plan provides that a loan is in default if payment is not made the end of the maximum cure period On June 1, 2020, the participant, while still a qualified individual, terminated employment and took a CRD of all his vested account, except for the outstanding loan. When does his outstanding loan become a loan offset: June 1, 2020, when he took the CRD distribution? No--because the Plan permits him to continue making loan repayments after termination of employment. And, the IRS has suspended loan repayments until July 15, 2020. OR Yes--because he took distribution. He can treat the entire amount, including the loan offset, as a CRD distribution. (The sum of the CRD and loan offset are less than $100,000.) July 15, 2020, when he failed to resume loan repayments? No, because he is a qualified individual and has until January 1, 2021 to resume loan repayments. OR Yes, because he had 30 days after termination of employment to repay the loan and he did not. He can treat the entire amount, including the loan offset, as a CRD distribution. January 1, 2021 if he fails to resume loan repayments? If so, this cannot be treated as a CRD because it occurs after December 31, 2020. Thanks for your help.
  4. Hello! I happen to be familiar with IRS Notice 2020-61, which came out today, covering the deferral of 2020 contributions to 1/1/2021 under the CARES Act. I found the Notice to be very confusing, so I thought I would start this thread as a PSA, to give pension actuaries a leg up on understanding this. This post will explain how & what interest rates are to be used in connection with DB contributions originally due during calendar 2020 under Notice 2020-61. Under 2020-61, the CARES Act EIR rule (i.e., contributions are adjusted at the EIR of the plan year containing payment date) applies for payments actually made from January 1, 2020 through midnight on January 1, 2021 (or January 4, 2021 if the provision in the current Senate stimulus bill passes). For contributions that were originally due during calendar 2020 not yet paid by midnight, January 1, 2021, the CARES Act EIR rule expires. What replaces the CARES Act EIR rule (for unpaid amounts from 2020) is a modified version of 430(j); the modifications are that the quarterly & catch-up due dates are moved from calendar 2020 to 1/1/2021, and the quarterly contribution amounts are increased (with the EIR from the plan year they pertain to) to 1/1/2021. So, for example (which is unfortunately not included as a Notice 2020-61 example), say you have a calendar year plan, with a 1/1 valuation date, not subject to quarterly contributions in 2019. Say the 2019 contribution is made on 1/1/2021. To determine whether the 2019 MRC has been met, you must discount the contribution back to 1/1/2019 at the 2021 EIR. If instead, the contribution was made on 12/31/2020, you must discount the contribution back to 1/1/2019 at the 2020 EIR. The following chart is intended to help you walk through examples provided in Q&A 2 through 6: Notice Example Topic: Discounted contributions @ val date Topic: Adjusting QRC with interest to 1/1/21 PY contribution is for EIR used: orig due date to 1/1/21 Why? Payment dates used A-2 Yes 2019 2020 CARES Act EIR rule 12/31/20 A-3 Yes 2019 2020 CARES Act EIR rule 12/31/20 A-5 Yes 2020 2020 CARES Act EIR rule 12/31/20, 6/1/20 A-6 Ex 1a Yes 2020 2020 Expiration of CARES Act EIR rule; modified 430(j) Not paid by 1/1/21 A-6 Ex 1b Yes 2020 2020, then 2020+5% Modified 430(j) 2/15/21 A-6 Ex 2a Yes 2019 2019 Expiration of CARES Act EIR rule; modified 430(j) Not paid by 1/1/21 A-6 Ex 2b Yes 2019 2020 for 12/15/20 payment; 2019 for unpaid at 1/1/21 CARES Act EIR rule; Expiration of CARES Act EIR rule; modified 430(j) 12/15/20, nothing else paid by 1/1/21
  5. If the plan allows for Corona Virus distributions. Can they limit the distribution to be from only sources that are fully vested? Thanks!
  6. Several writers in BenefitsLink discussions have mentioned an idea that a plan provision for a coronavirus-related distribution might be unnecessary if the participant who would take it is severed from employment or otherwise entitled to a distribution. But here’s one further reason why a classification might matter. Some recordkeepers are waiving a processing fee for a coronavirus-related distribution, but not for a normal distribution.
  7. Anyone figure out what the new relief for plan loans means under IRS Notice 2020-23? Are loan repayments automatically suspended until July 15? From the Notice: The Secretary of the Treasury has also determined that any person performing a time-sensitive action listed in either § 301.7508A-1(c)(1)(iv) – (vi) of the Procedure and Administration Regulations or Revenue Procedure 2018-58, 2018-50 IRB 990 (December 10, 2018), which is due to be performed on or after April 1, 2020, and before July 15, 2020 (Specified Time-Sensitive Action), is an Affected Taxpayer. From Rev Proc. 2018-58: Statute or Regulation Act Postponed -. Sec. 72(p)(2)(B) and (C), and Sec. 1.72(p)-1, Q&A10 A loan from a qualified employer plan to a participant in, or a beneficiary of, such plan must be repaid in accordance with the timing requirements of section 72(p)(2)(B) and the level amortization requirement of section 72(p)(2)(C) (taking into account, if applicable, any cure period granted pursuant to § 1.72(p)-1, Q&A-10(a)).
  8. Since RMD's are suspended under the CARES Act, what does that mean for the 5498 reporting? We've provided IRA owners forms 5498 in January showing RMD amounts in boxes 11, 12a & 12b. However, we are not required to file 5498's with the IRS until 6/1/2020. Should those amounts be zeroed out prior to submitting to the IRS since an RMD is no longer required (even if the taxpayer already received their RMD notice)?
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