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Repaying QBADs


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I've scanned several articles and notice 2020-68 and  I cannot find the answer to what I think is an obvious question.  IF someone repays a QBAD how do they get back the taxes that they paid on that distribution?

Austin Powers, CPA, QPA, ERPA

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Fidelity suggests: “You may be able to request a refund of federal income taxes that you originally paid on the amount of your birth or adoption distribution if you timely file an amended federal income tax return for the applicable year(s).” https://nb.fidelity.com/bin-public/600_WI_PreLogin_English/documents/976801.1.0_QBOAD_Recontribution.pdf (emphasis added).

But I found no Treasury rule and no IRS nonrule guidance that directly supports that statement.

Some practitioners might guess it’s not happenstance that the three-year repayment period (for a QBAD received after December 29, 2022) aligns, somewhat, with a usual time for filing an amended return.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Wouldn't you just file a 1040-X, reduce your AGI, and explain the change in Part II (or III if electronic filing)? I've never done this, so I'm not certain, but it seems logical to me.

I'm a little grumpy about IRS tax filings about now...

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I have also learned since posting that there is an 8915-F for a similar repayment related to Qualified Disaster Distributions.  Perhaps they will amend that form to include all of the various distributions that can now be repaid.  Working on a training and it seems to include: QBAD's, Qualified Disaster Recovery, Domestic Abuse, and Emergency Expense.  so hopefully they will give us some direction on how to do it. 

Austin Powers, CPA, QPA, ERPA

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The attached article published in January 2023 notes that IRS Code section 6511 "prevents a refund from being provided after the limitations period, which is generally 3 years. Thus, there is not a mechanism that allows someone who took a QBAD to recontribute the distribution more than 3 years later and amend their return to receive a refund for taxes paid in the year of the withdrawal."

A copy of the full article is attached and the QBAD comment appears on page 2.  (It has a couple of other interesting, unrelated nuggets.)

Keating Muething & Klekamp PLL WHAT EMPLOYERS NEED TO KNOW ABOUT SECURE 2.0.pdf

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IRS just published a fact sheet about Qualified Disaster Recovery Distributions: https://www.irs.gov/newsroom/disaster-relief-frequent-asked-questions-retirement-plans-and-iras-under-the-secure-20-act-of-2022 (Thanks to the BenefitsLink bulletin for the timely notification!)

Under Q9, "May an individual repay a qualified disaster recovery distribution?," the guidance given states

Quote

For example, assume a qualified individual received a qualified disaster recovery distribution in 2022, and chose to include the distribution amount in income in equal amounts over a 3-year period (2022, 2023, and 2024). In 2024, that individual chooses to repay the full amount of the 2022 distribution to an eligible retirement plan. As a result of the repayment, the individual may file amended federal income tax returns for 2022 and 2023 to claim a refund of the tax attributable to the amount of the distribution that was included in income for those years, and the individual will not be required to include any amount in income in 2024 with respect to the 2022 distribution. See sections 4.D, 4.E, and 4.F of Notice 2005-92PDF, as well as the instructions to Form 8915-FPDF, for additional examples regarding repayment.

I realize this guidance is in relation to QDRDs and not QBADs, but the statute under 72(t)(I)(vi) says that rules for repayments of QDRDs shall be "similar to" those for QBADs. So it seems reasonable that the same guidance would apply.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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