The IRS and tax professionals continue to see a barrage of ERC aggressive broadcast advertising , direct mail solicitations and online promotions .”
2023 Tax Season Toolkit
IRS Provides Relief and Guidance for Certain Required Minimum Distributions IRS Notice 2023-54 ( IRB 2023-31 , July 31 , 2023 ) provides transition relief concerning the change in the RBD for RMDs under Sec . 401 ( a ) ( 9 ) pursuant to Section 107 of the Act .
Background Sec 401 ( a )( 9 ) requires qualified retirement plans to make minimum distributions starting by the RBD , as well as minimum distributions to beneficiaries if the employee dies before the RBD .
Individual retirement accounts and annuities ( IRAs ) described in Sec . 408 ( a ) and ( b ), annuity contracts , custodial accounts and retirement income accounts described in Sec 403 ( b ), and eligible deferred compensation plans under Sec . 457 ( b ) also are subject to Sec . 401 ( a )( 9 )’ s rules .
RBD : Act Section 107 amended Sec . 401 ( a )( 9 ) to change the RBD for qualified retirement plans under Sec . 401 ( a ) and other eligible retirement plans including IRAs .
Instead of defining the RBD by reference to April 1 of the calendar year following the calendar year in which the individual attains age 72 , the new RBD for an employee or IRA owner is defined by reference to April 1 of the calendar year after the calendar year in which the individual attains the applicable age — which is either 73 or 75 , depending on the individual ’ s birth date .
RMD Distribution Period : Sec . 401 ( a )( 9 ) provides rules for RMDs from a qualified plan during the employee ’ s life in Sec . 401 ( a ) ( 9 )( A ) and after the employee ’ s death in Sec . 401 ( a )( 9 )( B ). In addition to prescribing an RBD for distributions , these rules set forth the period over which the employee ’ s entire interest must be distributed .
Sec . 401 ( a )( 9 )( A )( ii ) provides that an employee ’ s entire interest in a qualified plan must be distributed beginning not later than the employee ’ s RBD , in accordance with regs , over the employee ’ s or over the lives of the employee and a designated beneficiary ( or over a period not extending beyond the life expectancy of the employee and a designated beneficiary ).
Under Sec . 401 ( a )( 9 )( B )( i ), if the employee dies after distributions began , the employee ’ s remaining interest must be distributed at least as rapidly as under the method of distributions the employee used under Sec . 401 ( a )( 9 )( A )( ii ) as of the date of the employee ’ s death .
Sec . 401 ( a )( 9 )( B )( ii ) and ( iii ) provide that , if the employee dies before
RMDs began , the employee ’ s interest must be distributed :
• Within five years after the employee ’ s death ( five-year rule ); or
• Over the designated beneficiary ’ s life or life expectancy ( in accordance with regs .) with distributions beginning not later than one year after the employee ’ s death — subject to an exception in Sec . 401 ( a )( 9 )( B )( iv ) if the designated beneficiary is the employee ’ s surviving spouse . New 10-Year Rule : The Act added Sec . 401 ( a )(( 9 )( H ) which replaced the five-year rule with a 10-year rule . Regs . proposed Feb . 24 , 2022 , deal with the 10-year rule and , when finalized , would apply beginning with the 2022 calendar year . This new 10-year rule and these proposed regs also were discussed in IRS Notice 2022-53 and were covered in the December 2022 California CPA Fed Tax column , Page 29 .
Eligible Rollover Distributions : Notice 2023-54 also discusses rules pertaining to these distributions .
Final Regs .’ Applicability Date Final regs . regarding RMDs under Sec . 401 ( a )( 9 ) and related provisions will apply for calendar years beginning not earlier than 2024 .
Guidance for Specified RMDs for 2023 A defined contribution plan that failed to make a specified RMD , defined below , will not be treated as failing to satisfy Sec . 401 ( a )( 9 ) merely because it did not make that distribution .
If a taxpayer did not take a specified RMD , the IRS will not assert that the Sec . 4974 25 -percent excise tax is due . If a failure to take an RMD is corrected by the end of the correction window ( generally , the end of the second year beginning after the year of the missed RMD ), this tax is reduced to 10 percent .
Specified RMD : For Notice 2023-54 purposes , a specified RMD is any distribution that under the Proposed Regs .’ interpretation would be required to be made in 2023 under a defined contribution plan or IRA , subject to Sec . 401 ( a )( 9 )( H )’ s rules , for the year in which the employer or designated beneficiary died--if that payment would be required to be made to : A . An employee ’ s or IRA owner ’ s designated beneficiary if :
1 . The employee or IRA owner , died in 2020 , 2021 or 2022 and on or after the employee ’ or IRA owner ’ s RBD ; and 2 . The beneficiary is not using the lifetime or life expectancy payments exception under Sec . 401 ( a )( 9 )( B )( iii ); or B . An eligible designated beneficiary ’ s beneficiary if
1 . The eligible designated beneficiary died in 2020 , 2021 or 2022 ; and
2 . That beneficiary was using the lifetime or life expectancy payments exception .
The IRS and tax professionals continue to see a barrage of ERC aggressive broadcast advertising , direct mail solicitations and online promotions .”
ERC Pitfalls : IRS Alerts Businesses of Warning Signs for Misleading Employees Retention Credit Scams
IR-2023-105 , May 25 , 2023 , renewed an IRS alert for businesses to watch out for tell-tale signs of misleading Employee Retention Credit ( ERC ) claims — as aggressive marketing continued .
The IRS and tax professionals continue to see a barrage of ERC aggressive broadcast advertising , direct mail solicitations and online promotions . While this credit is real , aggressive promoters are wildly misrepresenting and exaggerating who qualifies for the ERC .
The IRS has increased audit and criminal investigation work involving these claims . Businesses , tax-exempt organizations and others considering applying for this credit must carefully review the official requirements for this limited program before applying . Those improperly claiming this credit face follow-up IRS action .
“ This aggressive marketing of the Employee Retention Credit continues preying on innocent businesses and others ,” said IRS Commissioner Danny Werfel . “ Aggressive promoters present wildly misleading claims about this credit . They can pocket handsome fees
16 CALIFORNIA CPA DECEMBER 2023 www . calcpa . org