Pension & Benefits News IRS extends tax/reporting transition relief for IRA payments to state’s unclaimed property fund
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Wednesday, December 12, 2018

IRS extends tax/reporting transition relief for IRA payments to state’s unclaimed property fund

By Pension and Benefits Editorial Staff

The IRS has extended the withholding and reporting transition relief provided in situations where an individual retirement account (IRA) trustee pays an individual’s interest in a traditional IRA to a state’s unclaimed property fund. In IRS Rev. Rul. 2018-17, the IRS clarified that income tax withholding requirements and Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) reporting would apply to an IRA trustee’s payment of an individual’s interest in a traditional IRA to a state’s unclaimed property fund, if the payment is required by state law.

In Rev. Rul. 2018-17, the IRS provided that, because the individual did not make a withholding election concerning the payment to a state’s unclaimed property fund, a 10% withholding rate applied to the payment pursuant to Code Sec. 3405(b)(1), and the IRA trustee was required to withhold the required federal income tax amount. In addition, the trustee was also required to report the distribution on a Form 1099-R for the calendar year when the distribution was made, identifying the individual as the recipient, the total distribution amount, and the amount withheld.

However, under the transition relief in Rev. Rul. 2018-17, a person would not be treated as failing to comply with the withholding and reporting requirements for payments made before the earlier of January 1, 2019, or the date it becomes reasonably practicable for the person to comply with those requirements. The IRS notes that the Department of the Treasury and the IRS have received several requests for an extension of the transition relief.

The IRS is providing an extension to the above transition rule by changing the date from January 1, 2019 to January 1, 2020. Thus, a person will not be treated as failing to comply with the withholding and reporting requirements described in Rev. Rul. 2018-17 with respect to payments made before the earlier of January 1, 2020, or the date it becomes reasonably practicable for the person to comply with those requirements.

SOURCE: IRS Notice 2018-90.

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