COVID DIstribution Repayment

A client who own and runs a small hotel (and is obviously COVID-affected) wants to: 1) take out a $60,000 COVID Distribution, 2) elect to spread the tax out over 3 years, and then 3) repay $20,000 before 12/31/20, another $20,000 before 12/31/21, and the final $20,000 before 12/31/22 so that the entire amount is repaid equally over the 3 year period.

If the IRS follows the Form 8915 disaster rules, this would seem to work, but I can't find any real guidance to say that is how the tax process will work.  Does anyone else have any guidance or educated opinion?

Also, the hardship would normally be subject to 10% withholding.  Are there any ways around this for COVID Distributions intended to be repaid?

Thank you!

44 minutes ago, TN CPA said:

A client who own and runs a small hotel (and is obviously COVID-affected) wants to: 1) take out a $60,000 COVID Distribution, 2) elect to spread the tax out over 3 years, and then 3) repay $20,000 before 12/31/20, another $20,000 before 12/31/21, and the final $20,000 before 12/31/22 so that the entire amount is repaid equally over the 3 year period.

If the IRS follows the Form 8915 disaster rules, this would seem to work, but I can't find any real guidance to say that is how the tax process will work.  Does anyone else have any guidance or educated opinion?

Yes this will work.  Payments made before the due date of the tax return will count for that taxable year, so the first payment could even be made in 2021 on behalf of 2020.

We haven't seen 8915-E yet, but Notice 2020-50 details repayment with examples. 

48 minutes ago, TN CPA said:

Also, the hardship would normally be subject to 10% withholding.  Are there any ways around this for COVID Distributions intended to be repaid?

CRDs are subject to voluntary withholding, so participant can waive the 10% withholding

Notice 2020-50.pdf