6 New IRS Guidelines Advisors Should Know

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1. Digital Assets

In late January, the IRS said the term “digital assets” had replaced “virtual currencies,” a term used in previous years, on various tax forms. The IRS said taxpayers must answer the digital asset question and report all digital asset-related income when they filed their 2022 federal income tax return, as they did for fiscal year 2021. The instructions for answering the question were expanded and clarified to help taxpayers answer it correctly, according to the agency.

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2. No RMDs for Taxpayers Turning 72 in 2023

A notice released in late March notified IRA owners who turn 72 in 2023 that they do not have a required minimum distribution this year. The guidance also notified IRA providers that they had until April 28 to notify affected investors about the change.

The Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act, passed in late December, raised the age at which RMDs must start, beginning this year. The IRS relief was granted to financial institutions that might not have been able to “stop the presses" on RMD notices in time, according to Ed Slott.

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3. Irrevocable Trusts and the Step-Up in Basis

The IRS confirmed in late March that assets held in an irrevocable trust, when there has been a completed gift, do not receive a step-up in basis upon the death of the original owner. Tax and estate planning experts said IRS Revenue Ruling 2023-02 is likely to impact only highly wealthy clients, such as those who own a successful business, but the IRS’ ruling is still instructive for those engaging in more advanced estate planning.

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4. End of Emergency HSA Rules

In mid June, the IRS said it is phasing out the emergency rules letting HSA-compatible plans cover COVID-19 tests and treatments without making patients pay the usual HSA deductibles. The IRS said it plans to cut off access to the emergency rules given in IRS Notice 2020-15 — which applies to HSA-compatible, high-deductible health plans — for plan years ending after Dec. 31, 2024.

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5. Stock Buyback Tax Guidance

The IRS on July 10 released transitional guidance on when to report and pay the 1% stock buyback tax imposed under the Inflation Reduction Act. The new guidance confirms that, prior to the time specified in the forthcoming proposed regulations addressing the application of the buyback tax, taxpayers are not required to report the buyback tax during a covered corporation’s taxable year on any returns filed with the IRS or make any payments of such tax. The proposed regs will likely come later in 2023.

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6. RMD Relief for IRA Beneficiaries

The IRS on July 17 reassured IRA beneficiaries subject to the 10-year rule that they do not need to take required minimum distributions in 2023 from accounts they inherited in 2020 or later. The agency also gave extra time for IRA owners turning 72 who unnecessarily started RMDs this year to return the money to their accounts. IRS Notice 2023-54 extends the 60-day rollover deadline for those IRA owners. They now have until Sept. 30 to return the money to their accounts and avoid the tax bill.

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