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IRS Extension Provides IRA Holders an Extra Year

Posted By Administration, Thursday, November 29, 2018

On May 29, 2018, the Internal Revenue Service issued Revenue Ruling 2018-17, clarifying the agency’s position on traditional individual retirement account escheatment. Specifically, the ruling states that IRA holders – or trustees – must withhold 10 percent federal income tax and issue form 1099Rs when reporting unclaimed IRAs to the states. At that time, holders were given a compliance deadline of  Jan. 1, 2019, or as soon as it becomes “reasonably practicable” to do so.

 

UPPO worked closely with the Holders Coalition and other organizations, including SIFMA and ICI, whose members are likely to be affected by this ruling to formulate a strategy for raising these issues with the IRS and other agencies, such as the SEC and FINRA, which may have conflicting opinions on the practice. Members of the Holders Coalition, including UPPO representatives Jen Borden and Dana Terry, met with the IRS in September to discuss a variety of concerns.

 

These efforts contributed to an extension of the compliance deadline from Jan. 1, 2019, to Jan. 1, 2020. On Nov. 20, 2018, the IRS issued Notice 2018-90 announcing an extension:

 

“Relief is extended to payments made before the earlier of January 1, 2020, or the date it becomes reasonably practicable to comply with the withholding and reporting requirements described in Rev. Rul. 2018-17.”

 

Revenue Ruling 2018-17 clarifies that Section 3405 of the Internal Revenue Code considers “any distribution or payment from or under an IRA… as includible in gross income,” and thus subject to tax withholding by the holder/trustee. Some holders already have held this position and routinely withhold tax and issue 1099Rs for escheated IRAs. Others do not. 

 

Although the IRS ruling provides clarity and paves the way for consistent practices, it creates challenges for securities holders, who would need to liquidate property before reporting it to the state and withholding the 10 percent federal income tax. This practice could conflict with other regulations.

 

The extension allows for an additional 12 months to seek guidance and clarification from other regulatory bodies and put practices in place to comply with the IRS requirement.

 

UPPO will continue to monitor issues related to the IRS ruling and will provide members with any relevant updates that occur. 

Tags:  1099  banks  IRS  securities 

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