Section 1 Short title
This Act may be cited as the “IRA Preservation Act of 2017”.
IRA Preservation Act of 2017
A BILL
To reduce the disadvantages of individual retirement arrangements with respect to employer-sponsored retirement plans by helping taxpayers comply with laws affecting individual retirement arrangements, by providing for reduced penalties under the Internal Revenue Code of 1986 for certain self-corrections with respect to such laws, and for other purposes.
Sec. 2 Education and outreach
Information made available— The Secretary shall make available to the public the following information:
An overview of the laws and regulations related to individual retirement arrangements, including—
limits on contributions;
limits on deductions for contributions;
rollovers;
minimum required distributions;
non-exempt prohibited transactions; and
tax consequences for early distributions.
Examples of common errors by taxpayers with respect to the laws and regulations described in paragraph (1) and instructions on how to avoid such errors.
Targeted advance notices— Based on the information on common errors identified under subsection (a)(2), the Secretary shall identify critical failure points and cause notices to be issued to individual taxpayers in advance of their reaching such critical failure points, with advice on how to avoid such failures.
Soft notice program—
In general— The Secretary shall, at such time as the Secretary considers appropriate, cause a notice under this subsection to be issued to a taxpayer if the Secretary detects a material inconsistency between or among any tax returns or reports filed under the Internal Revenue Code of 1986, including an individual tax return and a third-party information return, that could represent tax liability incurred by the taxpayer because of—
an excess contribution to an individual retirement arrangement as described in section 4973 of the Internal Revenue Code of 1986;
an excess accumulation in an individual retirement arrangement as described in section 4974 of such Code; or
any other error associated with an individual retirement arrangement that the Secretary has the capability to detect automatically because of inconsistencies in returns filed or reports made under such Code.
Exceptions— The Secretary is not required to issue a notice under paragraph (1) with respect to an individual retirement arrangement in any case in which the Secretary—
intends to initiate an audit of the individual retirement arrangement;
has reason to believe there is no outstanding tax liability attributable to an excess contribution, excess accumulation, or other error described in subparagraph (A), (B), or (C) of paragraph (1); or
has other good cause consistent with the purposes of this Act.
Content— A notice issued under paragraph (1) to a taxpayer with respect to an individual retirement arrangement shall include—
an explanation of taxes that could be owed, as of the date of the notice, because of an excess contribution, excess accumulation, or other error described in subparagraph (A), (B), or (C) of paragraph (1), including, if applicable, an explanation of the reduced rates of tax available under section 4973(i) or 4974(e), as the case may be, of the Internal Revenue Code of 1986 for voluntary correction of an excess contribution or excess accumulation described in subparagraph (A) or (B) of paragraph (1) if voluntary correction is made within the correction window applicable under section 4973(i) or 4974(e), as the case may be, of such Code;
a statement that any failure to remit any taxes owed may result in an audit;
in the case of an excess contribution or excess accumulation described in subparagraph (A) or (B) of paragraph (1), an explanation of taxes that could be owed because of such excess contribution or excess accumulation, if voluntary correction is not made within the correction window applicable under section 4973(i) or 4974(e), as the case may be, of the Internal Revenue Code of 1986; and
a copy of the applicable form to be used by the taxpayer to remit taxes owed with respect to the individual retirement arrangement because of the potential excess contribution, excess accumulation, or other error described in the notice.
Coordination with self-correction procedures— A notice issued under this paragraph may not be considered as initiating an audit or otherwise demanding payment for purposes of section 4973(i) or 4974(e) of the Internal Revenue Code of 1986.
Sec. 3 Reduction of excise taxes for voluntary correction of common IRA errors
Reduction in excise tax on excess contributions— Section 4973 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:
“(i) Reduction of tax in certain cases
“(1) Reduction—In the case of a taxpayer who—
“(A) corrects, during the correction window, an excess contribution that was made to an individual retirement arrangement and that resulted in imposition of a tax under paragraph (1) or (3) of subsection (a), and
“(B) submits a return, during the correction window, reflecting such tax (as modified by this subsection),
“(2) Correction window defined—For purposes of this subsection, the term correction window means the period beginning on the date on which the tax under subsection (a) is imposed with respect to an excess contribution, and ending on the earlier of—
“(A) the date on which the Secretary initiates an audit, or otherwise demands payment, with respect to the excess contribution, or
“(B) the last day of the second tax year that begins after the end of the tax year in which the tax under subsection (a) is imposed.”
Reduction in excise tax on failures To take required minimum distributions—
In general— Section 4974 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:
“(e) Reduction of tax in certain cases
“(1) Reduction—In the case of a taxpayer who—
“(A) corrects, during the correction window, a shortfall of distributions from an individual retirement arrangement that resulted in imposition of a tax under subsection (a), and
“(B) submits a return, during the correction window, reflecting such tax (as modified by this subsection),
“(2) Correction window defined—For purposes of this subsection, the term correction window means the period of time beginning on the date on which the tax under subsection (a) is imposed with respect to a shortfall of distributions from an individual retirement arrangement, and ending on the earlier of—
“(A) the date on which the Secretary initiates an audit, or otherwise demands payment, with respect to the shortfall of distributions, or
“(B) the last day of the second tax year that begins after the end of the tax year in which the tax under subsection (a) is imposed.”
Coordination with waiver provisions—
by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively;
by striking “If the taxpayer” and inserting:
“(1) Waiver—Subject to paragraph (2), if the taxpayer”
by adding at the end the following:
“(2) Exception—The Secretary may not waive the tax imposed by subsection (a) with respect to an individual retirement arrangement.”
Authority to compromise— The amendments made by subparagraph (A) shall not limit the authority of the Secretary of the Treasury under section 7121 or any other provision of the Internal Revenue Code of 1986 to compromise the amount of any tax due under section 4974 of such Code, except that, in determining the amount of any such compromise, the Secretary may take into account the availability, under section 4974(e) of such Code, of voluntary correction during the correction window (as defined in section 4974(e)(2) of such Code).
Sec. 4 Harmonization of treatment of IRAs with employer plans
Elimination of additional tax on certain distributions— Subparagraph (A) of section 72(t)(2) of the Internal Revenue Code of 1986 is amended—
by striking “or ” at the end of clause (vii);
by striking the period at the end of clause (viii) and inserting “, or”; and
by adding at the end the following new clause:
“(ix) attributable to withdrawal of interest or other income earned on excess contributions to an individual retirement arrangement.”
Repeal of tax disqualification penalty—
In general— Paragraph (2) of subsection (e) of section 408 of the Internal Revenue Code of 1986 is repealed.
Conforming amendments—
Section 408(e)(1) of such Code is amended by striking “(2) or”.
Sections 220(e)(2), 223(e)(2), and 530(e) of such Code are amended by striking “paragraphs (2) and (4) of section 408(e)” each place it appears and inserting “paragraph (4) of section 408(e)”.
Section 4975(c)(3) of such Code is amended by striking “the account ceases to be an individual retirement account by reason of the application of section 408(e)(2)(A) or if”.
Statute of limitations— Subsection (l) of section 6501 of the Internal Revenue Code of 1986 is amended—
in paragraph (1), by inserting “(other than for individual retirement arrangements)” after “section 4975”; and
by adding at the end the following new paragraph:
“(4) Individual retirement arrangements—For purposes of any tax imposed by section 4973, 4974, or 4975 in connection with an individual retirement arrangement, the return referred to in this section shall be the income tax return filed by the person on whom the tax under such section is imposed for the year in which the act (or failure to act) giving rise to such liability for such tax occurred. In the case of a person who is not required to file an income tax return for the year in which the act (or failure to act) giving rise to such liability for such tax occurred—
“(A) the return referred to in this section shall be the income tax return that such person would have been required to file but for the fact that such person was not required to file such return, and
“(B) the 3-year period referred to in subsection (a) with respect to the return shall be deemed to begin on the date by which the return would have been required to be filed (excluding any extension thereof).”
Sec. 5 Individual retirement arrangement defined
In general— For purposes of this Act, the term individual retirement arrangement means an individual retirement account, an individual retirement annuity, and a Roth IRA described in sections 408(a), 408(b), and 408A, respectively, of the Internal Revenue Code of 1986.
by redesignating subsection (r) as subsection (s); and
by inserting after subsection (q) the following new subsection:
“(r) Individual retirement arrangement defined—For purposes of this section and sections 72(t), 4973, 4974, and 6501(l), the term individual retirement arrangement means an individual retirement account described in section 408(a), an individual retirement annuity described in section 408(b), and a Roth IRA described in section 408A.”
Sec. 6 Effective date
In general— Subject to subsections (b) and (c), this Act and the amendments made by this Act shall take effect on the date of the enactment of this Act.
Transition provisions—
Requests for waivers—
In general— Notwithstanding the amendments to section 4974(d) of the Internal Revenue Code of 1986 made by section 3(b)(2) of this Act, a taxpayer may, at any time before or during the transition period, file a written request for a waiver under section 4974(d) of such Code, as in effect on the day before the date of the enactment of this Act. The Secretary of the Treasury shall consider any such request as if the amendments made by section 3(b)(2) had not been made.
Transition period defined— For purposes of this paragraph, the term transition period means the period beginning on the date of the enactment of this Act and ending on the date that is 1 year after such date of enactment.
Applicability to certain prior acts—
In general— Except as provided in paragraph (1), the amendments made by this Act shall apply to any determination of or affecting liability for taxes, interest, or penalties that is made on or after the date of the enactment of this Act, even if the conduct upon which the determination is based occurred before such date of enactment.
Calculation of correction window in certain cases— In the case of an error that would have been eligible for correction under section 4973(i) or 4974(e) of the Internal Revenue Code of 1986 if tax had not been imposed under 4973(a) or 4974(a), as the case may be, of such Code before the date of the enactment of this Act, the correction window referred to in sections 4973(i) and 4974(e) of such Code shall be the period beginning on the date on which such tax was imposed and ending on the earlier of—
the date on which the Secretary of the Treasury initiates an audit or otherwise demands payment with respect to the conduct described in section 4973(a) or 4974(a), as the case may be, of such Code; or
the last day of the second tax year that begins after the tax year in which the date of the enactment of this Act occurs.
Implementation— Section 2 shall be implemented as soon as reasonably practicable after the enactment of this Act but in no case later than the date that is 1 year after the date of the enactment of this Act.