Qualified Disaster Recovery Distributions - Qualified Disaster Area

[RatherBeGolfing]

I'm having a hard time finding a good source for when a disaster is a Qualified Disaster for purposes of Qualified Disaster Recovery Distributions.  

Im 99% sure that for prior disaster recoveries, it was limited to areas FEMA designated as eligible for individual assistance rather than only public assistance. 

Does anyone have a good source to confirm or refute that only areas designated for individual assistance qualify?  I think this will come up rather frequently for those of us with clients in the southeast.

Next hurdle is whether the participant is a qualified individual, but we can clear that through self certification...

Thanks!

 

[C. B. Zeller]

The only guidance the IRS has published on this, as far as I am aware, is this FAQ: https://www.irs.gov/newsroom/disaster-relief-frequent-asked-questions-retirement-plans-and-iras-under-the-secure-20-act-of-2022

It doesn't say that a disaster has to be designated for individual assistance, only that it must be declared a "major disaster."

Q5. What is a qualified disaster?

A5. A qualified disaster is any disaster with respect to which a major disaster has been declared by the President after Dec. 27, 2020 (the date of enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020). Use the FEMA disaster declaration search tool, filtering for declaration type: Major Disaster Declaration, to determine if a specific disaster qualifies. Note that, on occasion, the disaster declaration type identified by FEMA may change if new information becomes available regarding the severity of impact of the event on individuals and businesses. For example, a disaster may initially be declared to be an “emergency” but may subsequently be declared to be a “major disaster.” The relief provided under SECURE 2.0 only applies in the case of declared major disasters.

[RatherBeGolfing]

4 minutes ago, C. B. Zeller said:

The only guidance the IRS has published on this, as far as I am aware, is this FAQ: https://www.irs.gov/newsroom/disaster-relief-frequent-asked-questions-retirement-plans-and-iras-under-the-secure-20-act-of-2022

It doesn't say that a disaster has to be designated for individual assistance, only that it must be declared a "major disaster."

Q5. What is a qualified disaster?

A5. A qualified disaster is any disaster with respect to which a major disaster has been declared by the President after Dec. 27, 2020 (the date of enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020). Use the FEMA disaster declaration search tool, filtering for declaration type: Major Disaster Declaration, to determine if a specific disaster qualifies. Note that, on occasion, the disaster declaration type identified by FEMA may change if new information becomes available regarding the severity of impact of the event on individuals and businesses. For example, a disaster may initially be declared to be an “emergency” but may subsequently be declared to be a “major disaster.” The relief provided under SECURE 2.0 only applies in the case of declared major disasters.

Thanks CBZ, this is all I have seen as well, other than a reference to Katrina Relief in Notice 2005-92.  Again, I cant put my finger on it but Im pretty sure we were always limited to areas designates for individual assistance.  I just happen to have a participant in a county that qualifies for public assistance under TS Debby, but they did not qualify for individual assistance.

[C. B. Zeller]

In the absence of any specific guidance, I do not think a plan administrator can be faulted for relying on the plain language of the law.

My recollection is also that past disaster relief declarations have been for areas designated for individual assistance, but that does not appear to be the case for QDRDs.

[RatherBeGolfing]

21 minutes ago, C. B. Zeller said:

In the absence of any specific guidance, I do not think a plan administrator can be faulted for relying on the plain language of the law.

My recollection is also that past disaster relief declarations have been for areas designated for individual assistance, but that does not appear to be the case for QDRDs.

Thanks CBZ, I'm leaning towards this as well since I dont see any reference to the type area designation.

 

[xabana]

Not a direct answer, but major disasters apply to both individual and public assistance declarations:  https://www.irs.gov/businesses/small-businesses-self-employed/disaster-assistance-and-emergency-relief-for-individuals-and-businesses.    

 

In this link, the IRS defines major disaster declarations as follows:

• Major disaster declarations
  • Individual assistance declarations provide assistance to individuals and households.
  • Public assistance declarations provide assistance to state, tribal and local governments and certain private nonprofit organizations for emergency work and the repair or replacement of disaster-damaged facilities.

But if you look at underlying legislation concerning disasters, the definition of "qualified disaster zone" is problematic because it seems to indicate what the OP was thinking - individual assistance is necessary.  For example, under the 2020 Tax Relief Act, the term “qualified disaster zone” means that portion of any qualified disaster area which was determined by the President . . . to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of the qualified disaster with respect to such disaster area. 

As always, it would be nice to have IRS guidance that is on point.  

[RatherBeGolfing]

Thanks @xabana!

 

[Craig Hoffman]

. A qualified individual is defined as a person who:

·        Had his or her principal residence in the qualified disaster area during the disaster incident period; and

·        Sustained an economic loss by reason of the qualified disaster.

A qualified disaster is defined as one that has been declared as a major disaster by the President of the United States under the Robert T. Stafford Disaster Relief and Emergency Assistance Act after December 27, 2020. The IRS recommends using the search tool on the Federal Emergency Management Agency (FEMA) website to determine whether an event has been declared a major disaster and the specific area affected.[1] In addition, the FEMA website will also set forth the incident period during which the disaster occurred.

 

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[1] FEMA Disasters Search Tool, available at https://www.fema.gov/disaster/declarations

From an article I wrote for a Nova newsletter.

[RatherBeGolfing]

30 minutes ago, Craig Hoffman said:

. A qualified individual is defined as a person who:

·        Had his or her principal residence in the qualified disaster area during the disaster incident period; and

·        Sustained an economic loss by reason of the qualified disaster.

A qualified disaster is defined as one that has been declared as a major disaster by the President of the United States under the Robert T. Stafford Disaster Relief and Emergency Assistance Act after December 27, 2020. The IRS recommends using the search tool on the Federal Emergency Management Agency (FEMA) website to determine whether an event has been declared a major disaster and the specific area affected.[1] In addition, the FEMA website will also set forth the incident period during which the disaster occurred.

 

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[1] FEMA Disasters Search Tool, available at https://www.fema.gov/disaster/declarations

From an article I wrote for a Nova newsletter.

I appreciate it Craig.  Stay dry on the east coast, we are bunkering down here in Tampa. 

[Belgarath]

RBG and all others down there - keeping our fingers crossed for you! My cousin lives in Sarasota, and Helene left 3 feet of water in his house, and he was luckier than many. It doesn't sound good for this one. Be safe!!!

 

[RatherBeGolfing]

2 minutes ago, Belgarath said:

RBG and all others down there - keeping our fingers crossed for you! My cousin lives in Sarasota, and Helene left 3 feet of water in his house, and he was luckier than many. It doesn't sound good for this one. Be safe!!!

 

Thanks @Belgarath!  

[Peter Gulia]

I’ll keep a good thought for those in the hurricanes’ paths.

On RatherBeGolfing’s practical query, and Craig Hoffman’s pointer, about discerning whether a disaster qualifies:

Consider that getting the details right might matter because for a qualified disaster recovery distribution a plan’s administrator gets no special reliance on a claimant’s self-certification.

[RatherBeGolfing]

5 minutes ago, Peter Gulia said:

Consider that getting the details right might matter because for a qualified disaster recovery distribution a plan’s administrator gets no special reliance on a claimant’s self-certification.

self-certification appears nowhere in the statutory language, but the IRS included it in FS-2024-19

https://www.irs.gov/newsroom/disaster-relief-frequent-asked-questions-retirement-plans-and-iras-under-the-secure-20-act-of-2022

See Q&A 11

Q11. May a plan sponsor or plan administrator rely on a participant’s reasonable representations that the participant is a qualified individual?

A11. A plan sponsor or plan administrator is permitted to rely on a participant’s reasonable representations that the participant is a qualified individual who qualifies for this special treatment for distributions and loans, unless the plan administrator (or other responsible person) with respect to the qualified employer plan has actual knowledge to the contrary.

[Peter Gulia]

RatherBeGolfing, thank you for correcting my lack of information.

For other early-out distributions, the statute conditions the reliance only on an absence of knowledge to the contrary. For example, I.R.C. (26 U.S.C.) § 401(k)(14)(C).

For a qualified disaster recovery distribution, the IRS guidance conditions the reliance not only on an absence of knowledge to the contrary but also on some finding that the participant’s representations are “reasonable.”

That leaves ambiguities about the circumstances in which a claim’s statement might be reasonable or unreasonable. And about how a plan’s administrator or its service provider discerns what is or isn’t reasonable.

For example, must one at least consider whether a claim’s statement that the participant’s “principal place of abode at any time during the incident period of [the] qualified disaster is [or was] located in the qualified disaster area” seems supported by the plan’s records of the participant’s address (whether at the time of processing the claim, and back to the onset of the incident period)?

If so, one needs answers to RBG’s opening questions about defining and determining a qualified disaster and a qualified disaster area.

And if a plan’s administrator finds it unnecessary to ask anything about the “principal place of abode” element, what else does one check for whether the participant’s claim seems reasonable?

Or is a claim reasonable with no more finding than that the plan’s administrator lacks “actual knowledge to the contrary”?

[Gina Alsdorf]

It will be interesting to see what the self-certifications look like.  I wonder why the limit was $22,000 that seems so random. 

[Peter Gulia]

In an Act of Congress revising Federal tax law, especially legislation enacted under a budget-reconciliation or appropriations procedure, an amount or other measure might relate to what the legislators sought in the Joint Committee on Taxation’s and Congressional Budget Office’s scoring of the legislation’s revenue, expenditure, and other budget effects.

For example, JCT’s December 22, 2022 estimates on the Senate-passed Consolidated Appropriations Act show the disaster provisions’ revenue loss as $1.981 billion for fiscal years 2023-2032.