Taxpayer First Act: New Legislation Will Affect IRA Reporting Requirements | Wolters Kluwer
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  • Taxpayer First Act: New Legislation Will Affect IRA Reporting Requirements

    Robert Skomars Insights

    by Robert Skomars, Sr. Specialized Consultant, Tax Advantaged Accounts, Wolters Kluwer

    Published July 11, 2019



    Overview

    The Taxpayer First Act (i.e., H.R. 3151) which was signed into law on July 1, 2019, will likely require software/system updates for financial organizations, including some individual retirement account (IRA) custodians and trustees. The intent of the new law is, among other things, to “modernize and improve the Internal Revenue Service”, including its redesign and restructuring. Whether the new law fully accomplishes all of these goals is yet to be determined. We do know that more guidance will be forthcoming from the IRS in the coming months and years.

    Internet Platform for Form 1099 Filings 

    The new law will require the Internal Revenue Service (IRS) to create an internet website no later than January 1, 2023, designed to allow taxpayers to (1) prepare and file Forms 1099; (2) prepare Forms 1099 for distributions to recipients other than the IRS; and (3) maintain a record of completed, filed, and distributed [1099] Forms. While the new statute does not specifically identify IRS Form 1099-R, it would seem to include such form simply because it is not excluded by form number. Note also that the new website will send such forms to entities other than the IRS. Obviously there are many questions raised by this new statute which are unanswered at this time. Stand by for more to come as information is released by the IRS.

    Expanded Use of Electronic Systems

    In order to decrease the number of IRA custodian/trustees that file IRS information returns to the IRS on paper, the new law will reduce the current threshold of forms (i.e., 250) processed by an IRA custodian/trustee that require electronic filing to 10 for calendar years starting with 2022. Please note, however, this is a stepped-reduction; for calendar year 2021 the threshold will be reduced to 100. Clearly the IRS prefers electronic filing as it significantly increases the efficiency with which they can process information.

    Mandatory Electronic Filing Form 990-T

    While generally exempt from tax, in certain circumstances the earnings attributable to an IRA investment are taxable while the investment is held by the IRA, which is the case when an IRA holds a business and that business generates $1,000 or more of income during a year. Since the nature of any business is unrelated to the purpose of the IRA, that income is called “unrelated business taxable income”. If this was not the case it would make sense for an individual to hold a business as an investment within his/her IRA if for no other reason than to shield the business’s profits from taxation. Instead, such businesses held by an IRA must have an IRS Form 990-T Exempt Organization Business Income Tax Return filed by the IRA custodian/trustee (fiduciary) to claim that income as taxable. The deadline to file Form 990-T electronically has not been finalized, but the law has parameters for how long this deadline may be delayed.

    Expect More Information

    Any time new legislation is passed affecting reporting, including IRA reporting, there is a delay in clarification of the new rules issued by the IRS [and other affected entities]. This legislation is no different. Keep following Wolters Kluwer’s articles posted to Insights for IRS guidance and more details regarding this legislation.

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