Section 1 Short title
This Act may be cited as the “IRA Preservation Act of 2019”.
IRA Preservation Act of 2019
A BILL
To reduce the disadvantages of individual retirement plans with respect to employer-sponsored retirement plans by helping taxpayers comply with laws affecting individual retirement plans, by providing for reduced penalties under the Internal Revenue Code of 1986 for certain self-corrections with respect to such laws, and by expanding the Employee Plans Compliance Resolution System to cover certain errors under individual retirement plans, and for other purposes.
Sec. 2 Education with respect to IRAs
The Secretary of the Treasury shall make available to the public the following information:
An overview of the laws and regulations related to individual retirement plans (as defined in section 7701(a)(37) of the Internal Revenue Code of 1986), including—
limits on contributions;
limits on deductions for contributions;
rollovers;
minimum required distributions;
nonexempt 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.
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 which was made to an individual retirement plan and which 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—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 taxable year that begins after the end of the taxable 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 plan which resulted in imposition of a tax under subsection (a), and
“(B) submits a return, during the correction window, reflecting such tax (modified by this subsection),
“(2) Correction window—For purposes of this subsection, the term “correction window” means the period of time beginning on the data on which the tax under subsection (a) is imposed with respect to a shortfall of distributions from an individual retirement plan, 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 taxable year that begins after the end of the taxable year in which the tax under subsection (a) is imposed.”
Sec. 4 Harmonization of treatment of IRAs with employer plans
Elimination of additional tax on certain distributions— Section 72(t)(2)(A) 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 inserting after clause (viii) the following new clause:
“(ix) attributable to withdrawal of interest or other income earned on excess contributions (as defined in section 4973(b) (without regard to the second to last sentence thereof)) to an individual retirement plan.”
Repeal of tax disqualification penalty—
In general— Paragraph (2) of section 408(e) of the Internal Revenue Code of 1986 is repealed.
Conforming amendments—
Section 408(e)(1) of the Internal Revenue Code of 1986 is amended by striking “(2) or”.
Sections 220(e)(2), 223(e)(2), and 530(e) of the Internal Revenue Code of 1986 are each amended by striking “paragraphs (2) and (4) of section 408(e)” and inserting “section 408(e)(4)”.
Section 4975(c)(3) of the Internal Revenue Code of 1986 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”.
in paragraph (1), by inserting “(other than with respect to an individual retirement plan)” after “section 4975”; and
by adding at the end the following new paragraph:
“(4) Individual retirement plans—For purposes of any tax imposed by section 4973, 4974, or 4975 in connection with an individual retirement plan, 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 the liability for such tax occurred. In the case of a person who is not required to file an income tax return for such year—
“(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 Expansion of employee plans compliance resolution system
EPCRS for IRAs— The Secretary shall expand the Employee Plans Compliance Resolution System to allow trustees, custodians, and issuers of individual retirement plans (as defined in section 7701(a)(37) of the Internal Revenue Code of 1986) to address inadvertent failures for which the owner of an individual retirement plan was not at fault, including (but not limited to)—
waivers of the excise tax which would otherwise apply under section 4974 of the Internal Revenue Code of 1986;
under the self-correction component of the Employee Plans Compliance Resolution System, waivers of the 60-day deadline for a rollover where the deadline is missed for reasons beyond the reasonable control of the account owner; and
rules permitting a nonspouse beneficiary to return distributions to an inherited individual retirement plan described in section 408(d)(3)(C) of the Internal Revenue Code of 1986 in a case where, due to an inadvertent error by a service provider, the beneficiary had reason to believe that the distribution could be rolled over without inclusion in income of any part of the distributed amount.
Required minimum distribution corrections— The Secretary shall expand the Employee Plans Compliance Resolution System to allow plans to which such system applies and trustees, custodians, issuers, and owners of individual retirement plans to self-correct, without an excise tax, any inadvertent failures pursuant to which a distribution is made no more than 180 days after it was required to be made.
Inadvertent failure— For purposes of this section—
In general— Except as provided in paragraph (2), the term “inadvertent failure” means a failure that occurs despite the existence of practices and procedures which—
satisfy the standards set forth in section 4.04 of Revenue Procedure 2018–52 (or any successor provision); or
satisfy similar standards in the case of an individual retirement plan.
Correction by owner of individual retirement plan— In the case of a correction by an owner of an individual retirement plan under subsection (b), the term “inadvertent failure” means a failure due to reasonable cause.
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—
In general— The amendments made by this Act shall apply to any determination of or affecting liability for taxes, interest, or penalties which is made on or after the date of the enactment of this Act, without regard to whether the conduct upon which the determination is based occurred before such date of enactment. Notwithstanding the preceding sentence, nothing in the amendments made by section 4(a) shall be construed to create an inference with respect to the law in effect prior to the effective date of such amendments.
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) (as added by this section) 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 taxable year that begins after the taxable 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.