Written by: Elissa Wurf, PhD, CPA, EA
Please Note: As with the updates described below, changes are being rolled out by the IRS and the states sometimes even hourly basis. Therefore, what we say now about returning RMDs below, for example, is still subject to change if the IRS decides to provide further relief.
The tax deadlines, in contrast, seem to have stabilized, with Notice 2020-23 superseding Notice 2020-18 superseding Notice 2020-17, each one providing further updates and clarifications.
IRS Notice 2020-23 was issued on April 9, 2020 which pushed all tax filing and payment deadlines previously due between April 1, 2020 and July 14, 2020 to July 15, 2020.
The biggest implication of this notice for our clients is that the Estimated Payment Deadline for Q2, normally June 15th, will now be July 15th, the same day as the previously rescheduled deadline for Q1 Estimated Payments.
The notice also provided clarification for retirees who took RMDs for 2020 before the requirement to take those this year was suspended by the CARES Act: These distributions are still subject to the 60-day rollover rule, meaning that any distributions taken prior to that 60-day window (for example, distributions taken in January or the first half of February) are no longer eligible to be returned to the IRA, since returns count as direct rollovers. However, in certain cases, these distributions could be turned into Roth conversions.
In addition, the “only one distribution per 365 day” rule still applies, meaning that those clients who take monthly RMD distributions are eligible to return one and only one distribution. Also, those clients who did an IRA rollover in addition to a distribution within the 365-day window are not permitted to return a distribution. The IRA rollover rules are filled with potential traps to be avoided!
Finally, the IRS is currently not opening its mail. They have requested that tax filings and payments be done remotely, if at all possible. Even before the COVID-19 crisis hit, there had been an 8-week delay in processing paper-filed returns. This meant in some instances that people received IRS penalty notices for failure to file or failure to pay when they had, in fact, filed or made their payments, simply because the time lag for paper processing was so long. These penalties are eventually overturned, but not without hassle. If at all possible, file any payments and tax returns electronically as the lag issues have been dramatically exacerbated by the COVID-19 crisis.
We invite you to contact any member of our Financial Planning Team if you have questions about these tax changes and how they affect you.