IRA Preservation Act of 2019

I 116TH CONGRESS 1ST SESSION H. R. 4117 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 pen- alties under the Internal Revenue Code of 1986 for certain self-correc- tions 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. IN THE HOUSE OF REPRESENTATIVES JULY 30, 2019 Mr. KIND (for himself and Mr. KELLY of Pennsylvania) introduced the following bill; which was referred to the Committee on Ways and Means 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 expand- ing the Employee Plans Compliance Resolution System to cover certain errors under individual retirement plans, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 2 •HR 4117 IH SECTION 1. SHORT TITLE. 1 This Act may be cited as the ‘‘IRA Preservation Act 2 of 2019’’. 3 SEC. 2. EDUCATION WITH RESPECT TO IRAS. 4 The Secretary of the Treasury shall make available 5 to the public the following information: 6 (1) An overview of the laws and regulations re- 7 lated to individual retirement plans (as defined in 8 section 7701(a)(37) of the Internal Revenue Code of 9 1986), including— 10 (A) limits on contributions; 11 (B) limits on deductions for contributions; 12 (C) rollovers; 13 (D) minimum required distributions; 14 (E) nonexempt prohibited transactions; 15 and 16 (F) tax consequences for early distribu- 17 tions. 18 (2) Examples of common errors by taxpayers 19 with respect to the laws and regulations described in 20 paragraph (1) and instructions on how to avoid such 21 errors. 22 SEC. 3. REDUCTION OF EXCISE TAXES FOR VOLUNTARY 23 CORRECTION OF COMMON IRA ERRORS. 24 (a) REDUCTION IN EXCISE TAX ON EXCESS CON- 25 TRIBUTIONS.—Section 4973 of the Internal Revenue Code 26 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 3 •HR 4117 IH of 1986 is amended by adding at the end the following 1 new subsection: 2 ‘‘(i) REDUCTION OF TAX IN CERTAIN CASES.— 3 ‘‘(1) REDUCTION.—In the case of a taxpayer 4 who— 5 ‘‘(A) corrects, during the correction win- 6 dow, an excess contribution which was made to 7 an individual retirement plan and which re- 8 sulted in imposition of a tax under paragraph 9 (1) or (3) of subsection (a), and 10 ‘‘(B) submits a return, during the correc- 11 tion window, reflecting such tax (as modified by 12 this subsection), 13 the first and second sentences of subsection (a) shall 14 be applied by substituting ‘3 percent’ for ‘6 percent’ 15 each place it appears. 16 ‘‘(2) CORRECTION WINDOW.—For purposes of 17 this subsection, the term ‘correction window’ means 18 the period beginning on the date on which the tax 19 under subsection (a) is imposed with respect to an 20 excess contribution, and ending on the earlier of— 21 ‘‘(A) the date on which the Secretary initi- 22 ates an audit, or otherwise demands payment, 23 with respect to the excess contribution, or 24 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 4 •HR 4117 IH ‘‘(B) the last day of the second taxable 1 year that begins after the end of the taxable 2 year in which the tax under subsection (a) is 3 imposed.’’. 4 (b) REDUCTION IN EXCISE TAX ON FAILURES TO 5 TAKE REQUIRED MINIMUM DISTRIBUTIONS.— 6 (1) IN GENERAL.—Section 4974 of the Internal 7 Revenue Code of 1986 is amended by adding at the 8 end the following new subsection: 9 ‘‘(e) REDUCTION OF TAX IN CERTAIN CASES.— 10 ‘‘(1) REDUCTION.—In the case of a taxpayer 11 who— 12 ‘‘(A) corrects, during the correction win- 13 dow, a shortfall of distributions from an indi- 14 vidual retirement plan which resulted in imposi- 15 tion of a tax under subsection (a), and 16 ‘‘(B) submits a return, during the correc- 17 tion window, reflecting such tax (modified by 18 this subsection), 19 the first sentence of subsection (a) shall be applied 20 by substituting ‘10 percent’ for ‘50 percent’. 21 ‘‘(2) CORRECTION WINDOW.—For purposes of 22 this subsection, the term ‘correction window’ means 23 the period of time beginning on the data on which 24 the tax under subsection (a) is imposed with respect 25 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 5 •HR 4117 IH to a shortfall of distributions from an individual re- 1 tirement plan, and ending on the earlier of— 2 ‘‘(A) the date on which the Secretary initi- 3 ates an audit, or otherwise demands payment, 4 with respect to the shortfall of distributions, or 5 ‘‘(B) the last day of the second taxable 6 year that begins after the end of the taxable 7 year in which the tax under subsection (a) is 8 imposed.’’. 9 SEC. 4. HARMONIZATION OF TREATMENT OF IRAS WITH 10 EMPLOYER PLANS. 11 (a) ELIMINATION OF ADDITIONAL TAX ON CERTAIN 12 DISTRIBUTIONS.—Section 72(t)(2)(A) of the Internal 13 Revenue Code of 1986 is amended— 14 (1) by striking ‘‘or’’ at the end of clause (vii); 15 (2) by striking the period at the end of clause 16 (viii) and inserting ‘‘, or’’; and 17 (3) by inserting after clause (viii) the following 18 new clause: 19 ‘‘(ix) attributable to withdrawal of in- 20 terest or other income earned on excess 21 contributions (as defined in section 22 4973(b) (without regard to the second to 23 last sentence thereof)) to an individual re- 24 tirement plan.’’. 25 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 6 •HR 4117 IH (b) REPEAL OF TAX DISQUALIFICATION PENALTY.— 1 (1) IN GENERAL.—Paragraph (2) of section 2 408(e) of the Internal Revenue Code of 1986 is re- 3 pealed. 4 (2) CONFORMING AMENDMENTS.— 5 (A) Section 408(e)(1) of the Internal Rev- 6 enue Code of 1986 is amended by striking ‘‘(2) 7 or’’. 8 (B) Sections 220(e)(2), 223(e)(2), and 9 530(e) of the Internal Revenue Code of 1986 10 are each amended by striking ‘‘paragraphs (2) 11 and (4) of section 408(e)’’ and inserting ‘‘sec- 12 tion 408(e)(4)’’. 13 (C) Section 4975(c)(3) of the Internal 14 Revenue Code of 1986 is amended by striking 15 ‘‘the account ceases to be an individual retire- 16 ment account by reason of the application of 17 section 408(e)(2)(A) or if’’. 18 (c) STATUTE OF LIMITATIONS.—Section 6501(l) of 19 the Internal Revenue Code of 1986 is amended— 20 (1) in paragraph (1), by inserting ‘‘(other than 21 with respect to an individual retirement plan)’’ after 22 ‘‘section 4975’’; and 23 (2) by adding at the end the following new 24 paragraph: 25 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 7 •HR 4117 IH ‘‘(4) INDIVIDUAL RETIREMENT PLANS.—For 1 purposes of any tax imposed by section 4973, 4974, 2 or 4975 in connection with an individual retirement 3 plan, the return referred to in this section shall be 4 the income tax return filed by the person on whom 5 the tax under such section is imposed for the year 6 in which the act (or failure to act) giving rise to the 7 liability for such tax occurred. In the case of a per- 8 son who is not required to file an income tax return 9 for such year— 10 ‘‘(A) the return referred to in this section 11 shall be the income tax return that such person 12 would have been required to file but for the fact 13 that such person was not required to file such 14 return, and 15 ‘‘(B) the 3-year period referred to in sub- 16 section (a) with respect to the return shall be 17 deemed to begin on the date by which the re- 18 turn would have been required to be filed (ex- 19 cluding any extension thereof).’’. 20 SEC. 5. EXPANSION OF EMPLOYEE PLANS COMPLIANCE 21 RESOLUTION SYSTEM. 22 (a) EPCRS FOR IRAS.—The Secretary shall expand 23 the Employee Plans Compliance Resolution System to 24 allow trustees, custodians, and issuers of individual retire- 25 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 8 •HR 4117 IH ment plans (as defined in section 7701(a)(37) of the Inter- 1 nal Revenue Code of 1986) to address inadvertent failures 2 for which the owner of an individual retirement plan was 3 not at fault, including (but not limited to)— 4 (1) waivers of the excise tax which would other- 5 wise apply under section 4974 of the Internal Rev- 6 enue Code of 1986; 7 (2) under the self-correction component of the 8 Employee Plans Compliance Resolution System, 9 waivers of the 60-day deadline for a rollover where 10 the deadline is missed for reasons beyond the rea- 11 sonable control of the account owner; and 12 (3) rules permitting a nonspouse beneficiary to 13 return distributions to an inherited individual retire- 14 ment plan described in section 408(d)(3)(C) of the 15 Internal Revenue Code of 1986 in a case where, due 16 to an inadvertent error by a service provider, the 17 beneficiary had reason to believe that the distribu- 18 tion could be rolled over without inclusion in income 19 of any part of the distributed amount. 20 (b) REQUIRED MINIMUM DISTRIBUTION CORREC- 21 TIONS.—The Secretary shall expand the Employee Plans 22 Compliance Resolution System to allow plans to which 23 such system applies and trustees, custodians, issuers, and 24 owners of individual retirement plans to self-correct, with- 25 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 9 •HR 4117 IH out an excise tax, any inadvertent failures pursuant to 1 which a distribution is made no more than 180 days after 2 it was required to be made. 3 (c) INADVERTENT FAILURE.—For purposes of this 4 section— 5 (1) IN GENERAL.—Except as provided in para- 6 graph (2), the term ‘‘inadvertent failure’’ means a 7 failure that occurs despite the existence of practices 8 and procedures which— 9 (A) satisfy the standards set forth in sec- 10 tion 4.04 of Revenue Procedure 2018–52 (or 11 any successor provision); or 12 (B) satisfy similar standards in the case of 13 an individual retirement plan. 14 (2) CORRECTION BY OWNER OF INDIVIDUAL 15 RETIREMENT PLAN.—In the case of a correction by 16 an owner of an individual retirement plan under 17 subsection (b), the term ‘‘inadvertent failure’’ means 18 a failure due to reasonable cause. 19 SEC. 6. EFFECTIVE DATE. 20 (a) IN GENERAL.—Subject to subsections (b) and (c), 21 this Act and the amendments made by this Act shall take 22 effect on the date of the enactment of this Act. 23 (b) TRANSITION PROVISIONS.— 24 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 10 •HR 4117 IH (1) IN GENERAL.—The amendments made by 1 this Act shall apply to any determination of or af- 2 fecting liability for taxes, interest, or penalties which 3 is made on or after the date of the enactment of this 4 Act, without regard to whether the conduct upon 5 which the determination is based occurred before 6 such date of enactment. Notwithstanding the pre- 7 ceding sentence, nothing in the amendments made 8 by section 4(a) shall be construed to create an infer- 9 ence with respect to the law in effect prior to the ef- 10 fective date of such amendments. 11 (2) CALCULATION OF CORRECTION WINDOW IN 12 CERTAIN CASES.—In the case of an error that would 13 have been eligible for correction under section 14 4973(i) or 4974(e) (as added by this section) of the 15 Internal Revenue Code of 1986 if tax had not been 16 imposed under 4973(a) or 4974(a), as the case may 17 be, of such Code before the date of the enactment 18 of this Act, the correction window referred to in sec- 19 tions 4973(i) and 4974(e) of such Code shall be the 20 period beginning on the date on which such tax was 21 imposed and ending on the earlier of— 22 (A) the date on which the Secretary of the 23 Treasury initiates an audit or otherwise de- 24 mands payment with respect to the conduct de- 25 VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS 11 •HR 4117 IH scribed in section 4973(a) or 4974(a), as the 1 case may be, of such Code; or 2 (B) the last day of the second taxable year 3 that begins after the taxable year in which the 4 date of the enactment of this Act occurs. 5 (c) IMPLEMENTATION.—Section 2 shall be imple- 6 mented as soon as reasonably practicable after the enact- 7 ment of this Act but in no case later than the date that 8 is 1 year after the date of the enactment of this Act. 9 Æ VerDate Sep 11 2014 03:37 Aug 15, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6301 E:\BILLS\H4117.IH H4117 kjohnson on DSK79L0C42 with BILLS