Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Your article was successfully shared with the contacts you provided.

Gearing up for tax time, the Internal Revenue Service has been busy issuing guidance since the beginning of 2020 on everything from required minimum distributions under the Secure Act, creating special forms for seniors, as well as launching an Identity Theft Central.

In early February the IRS launched Identity Theft Central to improve online access to information on identity theft and data security protection for taxpayers, tax professionals and businesses. It is available 24/7, offers help on how to report identity theft as well as how taxpayers can protect themselves against phishing and online scams.

Reporting RMDs Under Secure

In late January, the IRS released guidance for financial institutions on how to report required minimum distributions for 2020 under the Setting Every Community Up for Retirement Enhancement Act of 2019, or the Secure Act.

The IRS Notice 2020-6 “is more of an institutional fix for the financial companies that sent out what are now incorrect RMD notices to IRA owners who will turn age 70½ in 2020,” according to IRA specialist Ed Slott of Ed Slott & Co.

Under the Secure Act, “that age changed to 72, so these people do NOT have an RMD for 2020. Some clients of advisors are rightfully confused as to whether they are subject to RMDs or not in 2020.”

The notice provides relief to financial institutions “who due to the short amount of time they had after the Secure Act was enacted, sent out notices with incorrect info, confusing lots of people,” Slott explained.

The IRS, he added, “will not consider these notices to have been provided incorrectly.”

As the IRS notice explains: “If a financial institution provides an RMD statement to an IRA owner who will attain age 70½ in 2020 (including by providing a Form 5498), then the Internal Revenue Service will not consider such a statement to have been provided incorrectly, but only if the IRA owner is notified by the financial institution no later than April 15, 2020, that no RMD is required for 2020.”

Advisors should contact all RMD clients affected and let them know about the RMD rule changes, Slott counseled.

Advisors, he continued, “should reassure any client who turns 70½ in 2020 that they do NOT have an RMD this year, even though they received a statement from their IRA custodian saying they do. That statement is incorrect — so advisors can tell clients not to worry.”

On the other hand, Slott said, “advisors should also alert clients who turned age 70½ last year (in 2019) to let them know that they do NOT qualify for the age 72 RMD rule, because that new increased RMD age provision only applies to those who turn 70½ in 2020 or later. These clients still do have RMDs, the same as under the old rules. There is lots of confusion here for advisors to deal with.”

Advisors, Slott concluded, “have lots of calls to make, especially to their 70½ clients who may be getting and acting on incorrect information from their IRA custodian. This is another reason why you have an advisor.”

As the IRS notice explains, the Secure Act “did not change the required beginning date for IRA owners who attained age 70½ prior to” Jan. 1, 2020.

“In order to reduce misunderstanding among IRA owners, the IRS encourages all financial institutions, in communicating these RMD changes, to remind IRA owners who attained age 70½ in 2019, and have not yet taken their 2019 RMDs, that they are still required to take those distributions by April 1, 2020.”

The Treasury Department and IRS state that they are considering providing additional guidance with respect to the Secure Act, including guidance for plan administrators, payors and distributees if a distribution to a plan participant or IRA owner who will attain age 70½ in 2020 was treated as an RMD.

IRS Technology Needs an Overhaul

Tax groups urged the IRS in early February to integrate its “significant number” of outdated legacy technology systems as it prepares to report to Congress on how to redesign the agency as set out in the Taxpayer First Act.

The Act, signed into law on July 1, 2019, requires the IRS to submit to Congress by the end of fiscal 2020 a comprehensive proposal to reorganize and modernize to better support taxpayers. The agency hasn’t had a reorganization of its structure since 1988.

The American Institute of Certified Public Accountants, along with 10 stakeholder groups including the Latino Tax Professionals Association, the National Association of Enrolled Agents and the National Association of Tax Professionals, told the IRS in a Jan. 30 letter that the “significant number” of IRS legacy systems “prevents it from using current and evolving technology.”

The groups recommended the IRS instead “move to a platform company model in which the technological infrastructure allows for integration and coordination of information throughout the organization.”

Further, the groups said, the IRS “should explore the efficiencies of cost and timeline of implementation with in-house development as well as outsourcing.”

Barry Melancon, AICPA president and CEO, said in the Jan. 30 letter to the IRS that “stakeholders from across the profession are facing the same challenges and together, we agreed on solutions to address the top issues faced by practitioners everywhere. The recommendations outlined in this letter better empower practitioners to help their customers and, ultimately, help all taxpayers.”

The groups told the IRS that to enhance its relationship with the practitioner community, the IRS should commit to a Practitioner Services Division. “Without a dedicated ‘executive level’ Practitioner Services Division that can participate in the design of key practitioner-impacting policies and programs, the IRS will not achieve the success it desires with the tax-preparer community,” the groups wrote.

At a minimum, the groups said, the division should: “engage with the tax professional community; ensure practitioner feedback is acted upon through a liaison with all major operating divisions; maintain robust practitioner hotlines; and provide an online tax professional account.”

New Form 1040 for Seniors

Taxpayers born before Jan. 2, 1955, those 65 and older, can now use an alternative to Form 1040 when they file their 2019 federal income tax return, which is due April 15.

In response to a requirement in the Bipartisan Budget Act of 2018, the Internal Revenue Service created a tax form for seniors called Form 1040-SR, which features larger font and better readability when printed.

According to the IRS, the form allows senior taxpayers — whether they are working, not working or retired — to report income from other sources common to older filers, such as investment income, Social Security and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.

All lines and checkboxes on the alternative form mirror the Form 1040, and both forms use all the same attached schedules and forms. In addition, the revised 2019 instructions cover both forms.

Eligible taxpayers can use Form 1040-SR whether they plan to itemize or take the standard deduction. Itemizers can file Form 1040-SR with a Schedule A, Itemized Deductions, when filing their return.

For those taking the standard deduction, Form 1040-SR includes a chart that lists the standard deduction amounts, making it easier to calculate. It also ensures that seniors are aware of the increased standard deduction for taxpayers age 65 and older.

Married people who file a joint return can use the Form 1040-SR regardless of whether one or both spouses are 65 or older or retired.

The IRS said both the Forms 1040 and the 1040-SR use the same “building block” approach introduced last year that can be supplemented with additional Schedules 1, 2 and 3 as needed. It noted that many taxpayers with basic tax situations can file Form 1040 or 1040-SR with no additional schedules.

Washington Bureau Chief Melanie Waddell can be reached at [email protected]. —Michael S. Fischer contributed reporting


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.