June 1 IRS MRD Meeting

[Guest reg_h2b]

Does anyone have any knowledge of the recent IRS meeting on the proposed MRD reg's?

[Guest Taxwoman]

I Hope this is not infrigement- I got this from someone- it is from CCH[/color]

NEWS-FEDERAL, 2001TAXDAY, 06/05/2001, Item #I.5, Witnesses Say Reporting Requirements of Minimum Distribution Regs Too Burdensome

Witnesses Say Reporting Requirements of Minimum Distribution Regs Too Burdensome

Most of the 17 witnesses at a June 1 IRS hearing on proposed regulations relating to the required distributions from retirement plans (NPRM REG-130477- 00, NPRM REG-130481-00) (TAXDAY, 2001/01/12, I.10) said that the reporting requirements for the required minimum distribution (RMD) would be too burdensome for the financial services industry. They warned panelists from the IRS and Treasury Department that information that plan trustees and custodians could report would be inaccurate for many taxpayers.

Background

The proposed regulations provide guidance regarding minimum distributions from qualified plans, individual retirement accounts, deferred compensation plans, annuity contracts, custodial accounts and retirement income accounts. The IRS structured the new proposals to make it easier for plan participants, IRA owners and plan administrators to understand and apply the minimum distribution rules.

RMD Reporting

James Szostek, representing the American Benefits Council, Washington, D.C., said that the IRS should keep in mind the practical and administrative concerns that should apply broadly to different retirement vehicles. Szostek said that there is already a requirement for plan custodians to reasonably disseminate relevant information to taxpayers. However, the proposed regulations require trustees and custodians to report a computation for a future distribution based on taxpayer account information that may not be current and is beyond the control of the financial institution to obtain.

Rather than improving compliance, as may have been intended by the reporting requirement, Szostek said that the provision would hinder compliance and raise costs for the taxpayer, the financial institutions and for the IRS. Szostek expressed his belief that the proposed regulations should only clarify that it is the responsibility of the plan participant to calculate the appropriate RMD once they reach age 70-1/2.

Randolf Hurst Hardock, Davis & Harman, LLP, Washington, D.C., expanded on Szostek's point, indicating that the reporting requirement would confuse taxpayers and would result in a reduction in compliance. He said that the unacceptably high level of inaccurate reporting would reduce customer's faith in the traditionally accurate reporting provided from the financial industry.

Hardock noted that taxpayers who overwithdraw their RMD based on the inaccurate report provided by the financial institution would have an unnecessary depletion of their retirement assets. Conversely, taxpayers who underwithdraw based on the inaccurate report would subject themselves to the 50% excise tax on RMD's not withdrawn. He said that, in the effort to make the overly complex rules of the 1987 regulations simpler, the new 2001 rules should not impose an additional reporting requirement until the industry can provide more accurate information.

Susan Diehl, representing Pen Serv, Retirement Plans & Services, Ambler, Pa., said that variable factors used to establish the fair market value of an IRA at year's end would make it impossible to accurately determine the minimum required distribution in many situations. Diehl mentioned variables such as prior year or carryback contributions, outstanding rollovers and transfers, account balance adjustments, special investments not valued on December 31 and the recharacterization between traditional and Roth IRAs.

Allan R. Lipman, Lipman & Biltekoff, LLP, Williamsville, N.Y., suggested that the proposed regulations eliminate the 50% penalty for not complying with the RMD for taxpayers who relied on information furnished by their account trustee or custodian.

William Starkey, representing the Securities Industry Association, said that the reporting requirement is the most disappointing part of the proposed regulations. He said that taxpayers are already provided, on a request basis, the individualized calculation that will correctly compute the RMD. This can only happen when the client voluntarily provides adequate information to make the calculation. "The client has the right to receive the correct information," said Starkey.

Daniel A. Wentworth of Fidelity Investments, Boston, Mass., said that the IRA custodian will have no idea what funds may have been withdrawn from other IRAs and what year-end account balances those other accounts may show to properly compute the taxpayers RMD. Wentworth recommended that the appropriate role of the IRA custodian would be to provide the IRA owner with the end-of-year balance and to provide notice of RMD requirements for beneficiaries of inherited IRAs. He said that this limited information would be better than to give IRA customers a false sense that their RMD has been computed correctly by the IRA custodian.

Dennis L. Zuehlke, CUNA Mutual Group, Madison, Wis., said that, out of over 100,000 mutual fund accounts that would be subject to the proposed regulations in his organization, only 20,000 accounts have the newly required information to make the proper RMD computation. Zuehlke recommended using the minimum distribution incidental benefits (MDIB) tables as a safe harbor for both the taxpayer and the fiduciary institution. As long as taxpayers use the MDIB tables to compute the RMD, they should be protected from any excise tax that would otherwise be applicable in the case of an underwithdrawn amount. Also, the custodian should have no obligation to amend an RMD report after it has been issued and reported to the IRS.

Mortality Table

Szostek, Hardock and Lipman also requested that the 1983 mortality table, which was published in the 1987 regulations, be updated as is required by the Economic Growth and Tax Relief Reconciliation Act of 2001 (HR 1836), which is expected to be signed into law the week of June 4.

By Lawrence J. Holbrook, CCH News Staff

[Bruce Steiner]

Surely there were far more important issues than the reporting requirements, especially now that for most people, the minimum required distributions will be based upon the old MDIB rules, which are easy to calculate based upon the IRA owner's age.

Did anyone address any of the other issues?

[BPickerCPA]

Bruce,

I have not seen a transcript of the hearing. I recall that for the Roth regs hearing, my on-line service had a transcript, but I don't recall the time frame.

However, from what I've seen, most of those testifying came from the custodian side of the ledger, and they appear to object to additional burden that the reporting requirements would place on them. There are some legitimate questions, such as dealing with outstanding rollovers.

I think most of the other issues, such as gap-year death of beneficiary, were raised in comment letters.