February 09, 2021

Recently proposed IRS regulations address the mandatory 60-day extension of certain tax deadlines under the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of Pub. L. No. 116-94). The proposal explains which actions are covered by the extension, how the 60-day period is calculated and what is considered a federally declared disaster triggering the extension. Comments on the proposal are due by March 15. A public hearing (by teleconference) is scheduled for March 23.

Treasury’s authority to extend deadlines for a disaster

Internal Revenue Code (IRC) Section 7508A authorizes the Treasury Department to postpone for up to one year certain tax-related deadlines in response to a federally declared disaster. Once the president declares a disaster, Treasury announces which (if any) deadlines are postponed and the length of the postponement. IRC 7508(a)(1) and Rev. Proc. 2018-58 specify the actions for which Treasury can extend deadlines, including the following for retirement plan sponsors and administrators to:

 

  • Filing income, employment and excise tax returns
  • Filing the Form 5500 series
  • Paying minimum required distributions
  • Distributing elective deferrals in excess of the annual limit
  • Fixing qualification defects in a plan document by the end of the applicable remedial amendment period
  • Distributing or forfeiting contributions to pass the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests
  • Making deductible plan contributions under IRC Section 404(a) (but not minimum required contributions under Section 430)
  • Withdrawing nondeductible contributions to avoid the 10% excise tax
  • Self-correcting operational errors under the Employee Plans Compliance Resolution System (EPCRS)

New mandatory 60-day extension

The Taxpayer Certainty and Disaster Tax Relief Act of 2019 added a mandatory 60-day extension of certain deadlines. Under the new law, whenever Treasury issues relief under IRC Section 7508A for a federally declared disaster, the 60-day extension automatically applies to the deadlines for the following retirement-related actions:

 

  • Making deductible plan contributions (but not minimum required contributions)
  • Withdrawing contributions to an individual retirement account (IRA) before the tax-return due date
  • Recharacterizing IRA contributions (i.e., transferring from a Roth to traditional IRA or vice versa)
  • Completing a rollover to an eligible retirement plan or IRA

The proposal clarifies that the 60-day extension also applies to the deadline for any other tax-related action in IRC Section 7508(a)(1) or Rev. Proc. 2018-58 that Treasury includes in its disaster relief announcement.

 

Calculating 60-day extension

The 60-day extension serves as a minimum for actions covered by Treasury’s disaster announcements. Treasury can — and often does — grant a longer delay (up to one year). Under the proposal, the calculation of the 60-day extension depends on the start and end dates for the incident period identified in the disaster declaration. The mandatory extension begins at the start of the incident period, ends 60 days after the last day of the incident period and runs concurrently with the extension otherwise granted by Treasury.

 

Example. Hurricane Zeta made landfall in Alabama on Oct. 28, 2020. The president declared a major disaster for certain counties in the state, with an incident period from Oct. 28–29. The mandatory 60-day extension ran from Oct. 28 until Dec. 28, 2020 (i.e., 60 days after Oct. 29). However, Treasury granted a longer extension for covered acts until March 1, 2021.

 

If the declaration specifies an incident period with no end date, the extension is limited to the one-year maximum allowed under IRC Section 7508A. If the disaster declaration doesn’t specify an incident period, the 60-day mandatory extension doesn’t apply.

 

Definition of disaster

The proposal clarifies that a “federally declared disaster” means any disaster determined by the president under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. This includes both major disasters and emergencies declared under sections 401 and 501 (respectively) of that act.

 

Applicability date

The proposed regulations would apply to disasters declared on or after Dec. 21, 2019.

 

Related resource

Brian Kearney
by Brian Kearney

Principal, Mercer’s Law & Policy Group

Margaret Berger
by Margaret Berger

Principal, Mercer’s Law & Policy Group


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