Select Page

News and Alerts

The IRS has announced that it will begin accepting paper and electronic tax returns for the 2018 tax year on January 28, but much remains to be seen about how the ongoing shutdown of the federal government will affect this year’s filings. Although the Trump administration has stated that the IRS will pay refunds during the closure — a shift from IRS practice in previous government shutdowns — it’s not clear how quickly such refunds can be processed.

Effects of the shutdown on the IRS so far

An estimated 800,000 federal government workers have been furloughed since December 22, 2018, due to the impasse between President Trump and Congress over funding for a southern border wall. The most recent contingency plan published for the IRS lapsed on December 31, 2018, but it provided that only 12.5% of the tax agency’s approximately 80,000 employees would be deemed essential and therefore continue working during a shutdown.

The furloughs are necessary because the standoff over the border wall has prevented the enactment of several of the appropriations bills that fund the federal government. Tax refunds aren’t paid with appropriated funds, but IRS employees are. In the past, the IRS hasn’t paid tax refunds during shutdowns because it didn’t have the appropriated funds it needed to pay the employees who process refunds. Trump administration attorneys, however, have determined that the agency can issue refunds during a shutdown.

The IRS likely will need far more than 12.5% of its employees on the job to process refunds when it starts accepting filings. In 2018, the IRS received 18.3 million returns and processed 6.1 million refunds in the first week of tax season. By just one week later, it had received 30.8 million returns and issued 13.5 million refunds. Even though the IRS has indicated that it intends to recall “a significant portion of its workforce” to work, it has provided few details, and those employees would have to work without pay. The IRS says it will release an updated contingency plan “in the coming days.”

TCJA complicates the picture

The implementation of the federal tax overhaul could further complicate matters for taxpayers. The 2018 tax year is the first to be subject to the Tax Cuts and Jobs Act (TCJA), which brought sweeping changes to the tax code, as well as new tax forms. Various TCJA implementation activities, such as the development of new publications and instructions, will continue because they’re funded by earlier appropriations legislation.

Be aware that taxpayers and their accountants may not be able to contact the IRS with questions. When the IRS’s main number on January 9 was called, this recorded message was received: “Live telephone assistance is not available at this time. Normal operations will resume as soon as possible.”

During the 2013 government shutdown, taxpayers also couldn’t receive live telephone customer service from the IRS, and walk-in taxpayer assistance centers were shuttered. At that time, the IRS website was available, but some of its interactive features weren’t. Treasury Secretary Steve Mnuchin has stated that the IRS will call back enough employees to work to answer 60% to 70% of phone calls seeking tax assistance during this shutdown, which could lead to widespread taxpayer frustration.

Tax filing deadlines are still in effect

Regardless of how IRS operations proceed, taxpayers still need to comply with the filing deadlines. Individual taxpayers in every state but Maine and Massachusetts must file by April 15, 2019; filers in those two states have until April 17, 2019. Individuals who obtain a filing extension have until October 15, 2019, to file their returns but should pay the taxes owed by the April deadline to avoid penalties. If you have questions about tax filing, please contact one of our tax experts.

Disclaimer: This information was correct at the time of publication; however, new guidance from government agencies may be issued at any time, causing some or all of this information to change. Please visit our COVID-19 Business Strategy Hub for the latest news and ensure you are subscribed here to receive email alerts as they are released. We are working diligently to provide the most current information as it becomes available under our COVID-19 Actionable Insights For Businesses Series.


The Coronavirus Aid, Relief, and Economic Security (CARES) Act, as originally written, provided retirement plan participants with avenues for financial relief during the COVID-19 pandemic. When put into practice, several questions came to light surrounding the application of the term “qualified individuals.” Many people felt the original definition of who was qualified was not broad enough as individuals may have been impacted by a reduction in pay but not necessarily hours, or an individual’s employer may not have implemented furloughs or layoffs yet that individual’s financial status outside of the workplace could have still deteriorated. In these cases, individuals did not have access to their retirement funds under the original definition of a qualified individual.

On June 19, 2020, the U.S. Internal Revenue Service (IRS) issued additional guidance via Notice 2020-50 to assist plan administrators and employers in applying section 2202 of the CARES Act related to retirement plan distributions and loans. The following blog explores this additional guidance and provides insights into what this means for your business.

Who is Qualified for Distributions?

The IRS expanded the group of individuals who can be considered qualified and are eligible for coronavirus-related distributions. Qualified individuals receive favorable tax treatment on coronavirus-related distributions from eligible retirement plans.  Your next question is probably, “who is a qualified individual then?”

Prior to the issuance of Notice 2020-50, a qualified individual was defined as:

  • An individual or the spouse or dependent of an individual who is diagnosed with COVID-19 or the SARS-CoV-2 virus from the results of an approved test; or
  • An individual who experiences adverse financial consequences because of an inability to work due to quarantine, furlough, layoff, reduced hours, loss of childcare, or the closing or reduction of hours of a business owned or operated by the individual because of COVID-19.

Under the new provisions in Notice 2020-50, the IRS has expanded the definition of a qualified individual to include an individual who experiences adverse financial consequences as a result of:

  • The individual having a reduction in pay or self-employment income due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • The individual’s spouse or a member of the individual’s household being quarantined, being furloughed, laid off or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay or self-employment income due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

What Defines a Coronavirus-Related Distribution?

Now, let’s answer the next logical question. Notice 2020-50 goes into detail about the tax reporting and payment rules relating to coronavirus-related distributions (CRD) and clarifies that a CRD is almost any distribution to a qualified individual made on or after January 1, 2020 and before December 31, 2020. The CARES Act did limit the amount of aggregate distributions from all eligible retirement plans that can be treated as CRD to no more than $100,000. These distributions allow qualified individuals to access their retirement funds without the normal tax consequences. The guidance provides that CRDs:

  • Are not subject to the 10% excise tax on taxable IRA and tax-qualified retirement plan distributions received by an individual younger than age 59 1/2;
  • Are generally included as income over a three-year period; and
  • Will not be included as income as long as the distributions are eligible for tax-free rollover treatment and are contributed to an eligible retirement plan within a three-year period.

How Does the Guidance Affect Retirement Plan Loans?

Likewise, Notice 2020-50 addresses many questions related to administration of coronavirus-related loans (CRL). Under the CARES Act, plans may suspend loan repayments that are due from March 27 through December 31, 2020, and the dollar limit on new loans made between March 27 and September 22, 2020, is raised from $50,000 to $100,000. Also, the rule limiting the aggregate amount of loans to 50% of the employee’s vested balance has increased to 100% of the employee’s vested balance. Notice 2020-50 provides a safe harbor for which suspensions of payments and extensions of loan terms are permitted if elected by the employer and implies that repayments must begin again in January 2021, not a full year from the date of suspension as some originally interpreted.  CARES Act conditions are as follows:

  • Loan payments must resume at the end of the suspension period;
  • The loan’s term may be extended up to one year from the date originally required to be repaid;
  • Interest continues to accrue during the suspension period and is added to the loan principal; and
  • The loan must be reamortized and repaid in substantially level amounts over the remaining period of the loan.

Plan Sponsors Have a Choice

Finally, let’s talk about how this impacts your business, your potential action items and some of the decisions you will need to make. It is important to note that the plan administrators are permitted to choose if they allow coronavirus-related distributions and how to treat distributions under their plans.  Plan administrators can also decide whether or not to apply coronavirus-related plan loan rules. For example, an employer may choose to provide for coronavirus-related distributions but not change its plan loan provisions or loan repayment schedules. For further guidance and examples on coronavirus related distributions and loans, refer to IRS Notice 2020-50.

The additional guidance on retirement plan distributions and loans escalates the need for Plan Sponsors to review plan-related communications from the Plan’s recordkeeper and other service providers. Plan Sponsors that chose to permit these options and believed they would see little impact from CRDs and CRLs on their plans now face an expanded pool of qualified individuals and numerous questions on administration of these provisions. If you are making significant changes to your workforce or the way you administer your benefit plan, all of your service providers need to be aware of these changes. Your CPA, ERISA attorney and investment advisors are also important resources to help you navigate these uncharted waters.

contact an expert»


 

Cristina Kai, CPA, CFE, is a Senior Manager in Moore Colson’s Business Assurance Practice. She is responsible for planning and overseeing all aspects of financial statement audits with a special focus on the Real Estate Practice, including fund-level and property-level audits of our real estate clients.

Candace Jackson, CPA, is a Director in Moore Colson’s Business Assurance Practice. She manages audit and review teams and serves as a Practice Area Leader in the firm’s Employee Benefit Plan Practice.

 

Facebooktwitterredditpinterestlinkedinmail

Disclaimer: This information was correct at the time of publication; however, new guidance from government agencies may be issued at any time, causing some or all of this information to change. Please visit our COVID-19 Business Strategy Hub for the latest news and ensure you are subscribed here to receive email alerts as they are released. We are working diligently to provide the most current information as it becomes available under our COVID-19 Actionable Insights For Businesses Series.


The Coronavirus Aid, Relief, and Economic Security (CARES) Act, as originally written, provided retirement plan participants with avenues for financial relief during the COVID-19 pandemic. When put into practice, several questions came to light surrounding the application of the term “qualified individuals.” Many people felt the original definition of who was qualified was not broad enough as individuals may have been impacted by a reduction in pay but not necessarily hours, or an individual’s employer may not have implemented furloughs or layoffs yet that individual’s financial status outside of the workplace could have still deteriorated. In these cases, individuals did not have access to their retirement funds under the original definition of a qualified individual.

On June 19, 2020, the U.S. Internal Revenue Service (IRS) issued additional guidance via Notice 2020-50 to assist plan administrators and employers in applying section 2202 of the CARES Act related to retirement plan distributions and loans. The following blog explores this additional guidance and provides insights into what this means for your business.

Who is Qualified for Distributions?

The IRS expanded the group of individuals who can be considered qualified and are eligible for coronavirus-related distributions. Qualified individuals receive favorable tax treatment on coronavirus-related distributions from eligible retirement plans.  Your next question is probably, “who is a qualified individual then?”

Prior to the issuance of Notice 2020-50, a qualified individual was defined as:

  • An individual or the spouse or dependent of an individual who is diagnosed with COVID-19 or the SARS-CoV-2 virus from the results of an approved test; or
  • An individual who experiences adverse financial consequences because of an inability to work due to quarantine, furlough, layoff, reduced hours, loss of childcare, or the closing or reduction of hours of a business owned or operated by the individual because of COVID-19.

Under the new provisions in Notice 2020-50, the IRS has expanded the definition of a qualified individual to include an individual who experiences adverse financial consequences as a result of:

  • The individual having a reduction in pay or self-employment income due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • The individual’s spouse or a member of the individual’s household being quarantined, being furloughed, laid off or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay or self-employment income due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

What Defines a Coronavirus-Related Distribution?

Now, let’s answer the next logical question. Notice 2020-50 goes into detail about the tax reporting and payment rules relating to coronavirus-related distributions (CRD) and clarifies that a CRD is almost any distribution to a qualified individual made on or after January 1, 2020 and before December 31, 2020. The CARES Act did limit the amount of aggregate distributions from all eligible retirement plans that can be treated as CRD to no more than $100,000. These distributions allow qualified individuals to access their retirement funds without the normal tax consequences. The guidance provides that CRDs:

  • Are not subject to the 10% excise tax on taxable IRA and tax-qualified retirement plan distributions received by an individual younger than age 59 1/2;
  • Are generally included as income over a three-year period; and
  • Will not be included as income as long as the distributions are eligible for tax-free rollover treatment and are contributed to an eligible retirement plan within a three-year period.

How Does the Guidance Affect Retirement Plan Loans?

Likewise, Notice 2020-50 addresses many questions related to administration of coronavirus-related loans (CRL). Under the CARES Act, plans may suspend loan repayments that are due from March 27 through December 31, 2020, and the dollar limit on new loans made between March 27 and September 22, 2020, is raised from $50,000 to $100,000. Also, the rule limiting the aggregate amount of loans to 50% of the employee’s vested balance has increased to 100% of the employee’s vested balance. Notice 2020-50 provides a safe harbor for which suspensions of payments and extensions of loan terms are permitted if elected by the employer and implies that repayments must begin again in January 2021, not a full year from the date of suspension as some originally interpreted.  CARES Act conditions are as follows:

  • Loan payments must resume at the end of the suspension period;
  • The loan’s term may be extended up to one year from the date originally required to be repaid;
  • Interest continues to accrue during the suspension period and is added to the loan principal; and
  • The loan must be reamortized and repaid in substantially level amounts over the remaining period of the loan.

Plan Sponsors Have a Choice

Finally, let’s talk about how this impacts your business, your potential action items and some of the decisions you will need to make. It is important to note that the plan administrators are permitted to choose if they allow coronavirus-related distributions and how to treat distributions under their plans.  Plan administrators can also decide whether or not to apply coronavirus-related plan loan rules. For example, an employer may choose to provide for coronavirus-related distributions but not change its plan loan provisions or loan repayment schedules. For further guidance and examples on coronavirus related distributions and loans, refer to IRS Notice 2020-50.

The additional guidance on retirement plan distributions and loans escalates the need for Plan Sponsors to review plan-related communications from the Plan’s recordkeeper and other service providers. Plan Sponsors that chose to permit these options and believed they would see little impact from CRDs and CRLs on their plans now face an expanded pool of qualified individuals and numerous questions on administration of these provisions. If you are making significant changes to your workforce or the way you administer your benefit plan, all of your service providers need to be aware of these changes. Your CPA, ERISA attorney and investment advisors are also important resources to help you navigate these uncharted waters.

contact an expert»


 

Cristina Kai, CPA, CFE, is a Senior Manager in Moore Colson’s Business Assurance Practice. She is responsible for planning and overseeing all aspects of financial statement audits with a special focus on the Real Estate Practice, including fund-level and property-level audits of our real estate clients.

Candace Jackson, CPA, is a Director in Moore Colson’s Business Assurance Practice. She manages audit and review teams and serves as a Practice Area Leader in the firm’s Employee Benefit Plan Practice.

 

Facebooktwitterredditpinterestlinkedinmail
IPA 2021 Best of the Best Logo
IPA 2021 Top 200 Firms Logo
IPA 2021 Fastest-Growing Logo
AJC TWP 2022 Award Ribbon

Contact Us

Contact Form Footer

  • This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
  • This field is for validation purposes and should be left unchanged.