IRS Guidance Extends Many Tax-Related Deadlines in Response to COVID-19 Pandemic

On April 10, 2020, the IRS issued Notice 2020-23, guidance that expands the range of time-sensitive tax-related actions whose completion can be delayed to July 15, 2020. This extension is being provided as a result of the disruptions caused by the coronavirus (COVID-19) pandemic. The IRS had previously extended from April 15 to July 15 the deadline for filing individual and business tax returns, and for making IRA, HSA, and certain employer-sponsored retirement plan contributions.

Unlike the extensive retirement plan-related relief within the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, individuals or entities wishing to avail themselves of the extensions provided in IRS Notice 2020-23 need not meet any condition of being directly or indirectly affected by the COVID-19 pandemic.

Notice 2020-23 identifies actions eligible for the extended deadline as any that are described in Revenue Procedure 2018-58. Some are actions to be completed by individuals, others are the responsibility of entities such as financial organizations and retirement plans. For these actions, a deadline falling on or after April 1, 2020, and before July 15, 2020, is extended to July 15, 2020.

Actions whose deadline for completion is extended to July 15, 2020, include the following.

Employer Sponsored Retirement Plans

Contributions

• Make retirement plan contributions—including SEP and SIMPLE IRA contributions—for the preceding taxable year by the tax filing deadline, including filing extensions (addressed in prior guidance)
• Make a retirement plan loan payment, taking into account, if applicable, any cure period
• Complete an indirect (60-day) rollover to an eligible retirement plan

Distributions

• Distribute 402(g) excess deferrals, adjusted for earnings (normal deadline is April 15)
• Distribute deferrals, adjusted for earnings to satisfy 401(k) ADP testing requirements
• Distribute employer matching or employee nondeductible amounts, adjusted for earnings, to meet ACP testing requirements
• Distribute nondeductible employer contributions to avoid the 10 percent penalty tax
• Distribute excess contributions (ADP testing) and excess aggregate contributions (ACP testing), plus earnings by the deadline to avoid imposition of an additional 10 percent penalty tax
• Take an initial required minimum distribution (RMD) from a retirement plan by April 1 of the year following the first RMD year (earlier guidance waived all RMDs due in 2020)
• Distribute excess qualifying longevity annuity contract (QLAC) premiums by the last day of the calendar year following the year the premium was paid
• Begin distributions under a QLAC no later than the first day of the first month after the participant reaches age 85
• Elect a permissible withdrawal under a 401(k) eligible automatic contribution arrangement (EACA)
• Distribute a substantially equal periodic payment from a retirement plan

Other Plan Operations

• File a plan’s annual return in the Form 5500 series (if its deadline falls within the April 1 through July 15 extension period)
• Self-correct retirement plan operational failures by the last day of the second plan year following the plan year in which the failure occurred (certain failures excepted)
• Qualify by the Voluntary Correction Program (VCP) submission deadline to use alternate calculation of plan assets (for a plan that is not required to file a Form 5500 series return)
• Restate a retirement plan by the close of its remedial amendment period (because earlier guidance extended defined benefit plan deadlines to July 31, 2020, this provision applies only to 403(b) plan deadlines that were previously extended to June 30, 2020)
• Designate a nonspouse QLAC beneficiary by the annuity starting date

IRAs

Contributions

• Make a contribution to an IRA (previous guidance also extended this deadline to July 15)
• Complete a 60-day rollover to an IRA or other eligible retirement plan
• Roll over a retirement plan loan offset amount to an IRA by the recipient’s tax return deadline (addressed in prior guidance for 2019 offsets with recipient 2020 tax return deadlines)
• Complete a rollover (within 120 days) or use distributed funds to qualify for the first-time-home-buyer exception to the 10 percent early distribution penalty tax
• Recontribute to an IRA a qualified reservist distribution (normal deadline is two years after end of active duty)
• Roll over a wrongful IRS levy to an IRA or eligible retirement plan by the recipient’s tax return deadline (not including extensions)

Distributions

• Take an initial RMD from an IRA by April 1 of the year following the first RMD year (earlier guidance waived all RMDs due in 2020)
• Distribute an excess IRA contribution, with net income attributable, by the individual’s tax return deadline, including extensions
• Distribute a substantially equal periodic payment from an IRA
• Begin distributions under a QLAC no later than the first day of the first month after the participant reaches age 85
• Distribute excess QLAC contract premiums by the last day of the calendar year following the year the premium was paid

Operations & Miscellaneous

• Provide Form 5498, IRA Contribution Information, to the IRS and an account statement to the IRA owner (normal deadline is May 31)
• Designate a nonspouse QLAC beneficiary by the annuity starting date

Health Savings Accounts (HSAs)

• Complete a 60-day rollover to another HSA
• Provide Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, to the IRS and an account statement to the HSA owner (normal deadline is May 31)

Archer Medical Savings Accounts (MSAs)

• Complete a 60-day rollover to another MSA
• Provide Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, to the IRS and an account statement to the account owner (normal deadline is May 31)

ABLE Accounts

Contributions

• Complete a 60-day rollover from a 529 plan
• Complete a 60-day rollover to another ABLE account

Distributions

• Remove excess contributions with earnings by the beneficiary’s tax return deadline, including extensions
• Close (within 60 days) an ABLE account if a distribution has been rolled over to another ABLE account of the same beneficiary
• Provide Form 5498-QA, ABLE Account Contribution Information, to the IRS (normal deadline is May 31)

Coverdell Education Savings Accounts (ESAs)

Contributions

• Make an ESA contribution (normal deadline is tax return deadline, not including extensions)
• Complete a 60-day rollover to another ESA
• Provide Form 5498-ESA, Coverdell ESA Contribution Information, to the IRS (normal deadline is May 31)

Distributions & Operations

• Remove an excess contribution with earnings (normal deadline is June 1 of the following year)

529 Plans

• Complete a 60-day rollover from a 529 plan to another 529 plan or to an ABLE account
• Recontribute (within 60 days) refunds received from an eligible educational institution to a 529 plan

Cafeteria Plans

The Notice 2020-23 deadline extension to July 15, 2020, generally impacts noncalendar-year cafeteria plans. But for some purposes, the impact is more universal. Plans that permit new benefit elections for an employee’s status change, as well as elections for newly-hired employees will see deadline extensions apply on an individual basis. Issues of potential relevance include the following.

• Deadline to elect qualified benefits
• Deadline to forfeit unused FSA benefits
• Deadline to receive cash for unused vacation days

More to come

Additional guidance and relief has been requested, including an extension of time for retirement plans to file 2019 calendar year returns in the Form 5500 series, an issue that has yet to be addressed by the Department of Labor.

The Pension Benefit Guaranty Corporation (PBGC), which oversees the defined benefit plan insurance program for single-employer plans, has issued pandemic response guidance. Ascensus will review this guidance and will further explore IRS Notice 2020-23 relief—including that related to employee stock ownership plans (ESOPs). Further analysis will be forthcoming.