CRD- CARES Act

[Megan H]

I know the cut-off date for relief for Coronavirus related distributions under CARES is 12/31/20. The situation is the participant requested the distribution before that date (instructions received on 12/29), however it was not actually processed until January. Could this qualify as a CRD? 

[Lou S.]

No, CARES Act withdrawals need to be completed by 12/31/2020 to be treated as CARES Act withdrawals. Congress may pass legislation extending that date into 2021 if they feel it is warranted, but so far they have not. And by completed I mean check issued or funds transferred with a 2020, 1099-R attached to it.

 

[RatherBeGolfing]

16 hours ago, Lou S. said:

No, CARES Act withdrawals need to be completed by 12/31/2020 to be treated as CARES Act withdrawals. Congress may pass legislation extending that date into 2021 if they feel it is warranted, but so far they have not. And by completed I mean check issued or funds transferred with a 2020, 1099-R attached to it.

 

Technically, 12/30/2020. Id be surprised if they deny people with 12/31/2020 distributions though

[MoJo]

SPARK members have met to discuss this (I would expect virtually al R/K'er have some variant of this issue (we do).  Counsel to SPARK was on the call as well, and while not giving specific "legal" advice, indicated that *if* the money were out of the trust by the deadline (as in a common distribution checking account), arguably the deadline was met even though the check wasn't cut till the next day(s).  BUT, there is a major 1099 issue - as to which year it is taxable in - if the check didn't go out until 1/4/2021....

No resolution....

[Luke Bailey]

Presumably the recordkeeper/trustee will show it on 1099-R as a 2020 distribution if the check was mailed by it on 12/31/2020, so the participant is probably safe going by that. But I am not an R/'er, so query you guys, would that be the pracitce? I suspect that if you wanted to argue, the participant, a cash basis taxpayer, is not taxable until the check hits their mailbox, so there is a little bit of a mismatch. I also suspect that checks get mailed very late in December every year, are not cashed until the next year, but in filing his/her taxes the participant just goes by the year on the 1099-R.

[shERPA]

You say it wasn't "processed" until January.  I interpret this to mean the money was still in the plan and the check had not been issued as of 12/31.  I'd be surprised if the RK would issue a 2020 1099-R for this.  Sounds like a 2021 distribution to me. 

[MoJo]

On 1/8/2021 at 5:41 PM, Luke Bailey said:

Presumably the recordkeeper/trustee will show it on 1099-R as a 2020 distribution if the check was mailed by it on 12/31/2020, so the participant is probably safe going by that. But I am not an R/'er, so query you guys, would that be the pracitce? I suspect that if you wanted to argue, the participant, a cash basis taxpayer, is not taxable until the check hits their mailbox, so there is a little bit of a mismatch. I also suspect that checks get mailed very late in December every year, are not cashed until the next year, but in filing his/her taxes the participant just goes by the year on the 1099-R.

Well, our system is tied to the "check cut" date.  It's semi-automated.  So if the date of the check is 12/31/2020, it's a 2020 1099.  However, we had a handful that didn't get processed in 2020, despite the request being in - and that is the issue.  And that is the issue SPARK discussed (with no resolution).  Some are taking the approach that if the delay was "not the fault" of the p[participant, the request should be honored (but that still leaves the issue of the date of the 1099.

We actually had requests come in on 12/30 (at best, and I mean at best) it's a three day process to get to a check cut) and unholy heck is being raised.  Sorry - but that is the "fault" of the participant.  We set a deadline to "guarantee" processing which was sufficiently before the 12/30 deadline in order to process - and communicated that widely.

[MoJo]

On 1/8/2021 at 5:44 PM, shERPA said:

You say it wasn't "processed" until January.  I interpret this to mean the money was still in the plan and the check had not been issued as of 12/31.  I'd be surprised if the RK would issue a 2020 1099-R for this.  Sounds like a 2021 distribution to me. 

That raises a question.  If the trade "order" had been placed to liquidate investments, and that order is irrevocable, is the money in the trust?  Are the proceeds from that trade despite being earmarked for a distribution still in the trust?  If the money is in a common distribution account, but the check hasn't been cut mean the money is still in the trust?  Everybody has their own definition of "processed."

I can argue either side of the question(s) - but I'm a lawyer and paid to do so!  🙂

 

[shERPA]

3 hours ago, MoJo said:

That raises a question.  If the trade "order" had been placed to liquidate investments, and that order is irrevocable, is the money in the trust?  Are the proceeds from that trade despite being earmarked for a distribution still in the trust?  If the money is in a common distribution account, but the check hasn't been cut mean the money is still in the trust?  Everybody has their own definition of "processed."

I can argue either side of the question(s) - but I'm a lawyer and paid to do so!  🙂

 

Yeah, this is a great question.  I can argue both sides as well.  Unfortunately I'm a TPA, not a lawyer, so no one expects to pay me to do so. 

My own opinion is if it is an irrevocable, legally binding order, it should count a/o the date of the order, much like mailing a valid check by 12/31 counts as a payment.  But the reality is recordkeepers' systems are programmed in a certain way, and the 1099-R will be driven by the system.  And it's pretty much impossible to get them to override this process or revise a 1099-R. 

[MoJo]

2 hours ago, shERPA said:

Yeah, this is a great question.  I can argue both sides as well.  Unfortunately I'm a TPA, not a lawyer, so no one expects to pay me to do so. 

My own opinion is if it is an irrevocable, legally binding order, it should count a/o the date of the order, much like mailing a valid check by 12/31 counts as a payment.  But the reality is recordkeepers' systems are programmed in a certain way, and the 1099-R will be driven by the system.  And it's pretty much impossible to get them to override this process or revise a 1099-R. 

Now we get into what is "irrevocable."  It's possible to "reverse" a transaction even after the check is mailed.  Or even after the money has been received by an IRA custodian.  Or even after received by the participant and check is cut (depends on how motivated they are to return the money).  Not saying it's a best practice, but it happens.

The problem with drawing that line is that even a distribution request where the order to liquidate funds is received by 4:00 ET (NYSE closing) won't have any possibility of a check being cut until 1/2 of the following year.  Distribution when received in year 1, or when proceeds received and check cut in year 2?  My treasury department friends HATE this time of year.  And they detest this time of year currently because of the CRD issues.....

[Luke Bailey]

Another demonstration of the legal maxim that truth is stranger than fiction.