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In COVID, IRS masters art of take-back

Jim HamillIn the movie “Good Will Hunting,” Minnie Driver’s character, true to her British roots, was perplexed by Boston native Matt Damon’s use of the phrase “take back.”

Used as in “a take-back.”

Damon’s character said he feared Driver’s character would want a take-back if he followed her to California.

The IRS, true to its American roots, has been offering quite a few take-backs lately. Answering COVID-connected tax questions now carries the risk that the IRS will issue a take-back. And just about everything is COVID-connected.

Earlier this COVID season I had a question about returning required minimum distributions (RMDs) from early in 2020. The question related to monthly RMDs taken from an IRA early in 2020.

The CARES legislation eliminated RMDs for 2020, but a bit late for those who take monthly distributions and had started pre-CARES. I (correctly, at least at the time) answered that only one monthly RMD could be rolled back into the IRA without a tax effect following the CARES changes to the RMD rules.

The tax law limits you to one rollover per 12-month period. This left those who started RMDs early in 2020 with taxable distributions that could have been avoided only with properly functioning crystal balls. And everyone knows you cannot predict the actions of Congress.

The IRS has now issued a take-back. Anyone who had a distribution from a retirement plan that would have been a RMD apart from the CARES suspension of RMDs can now roll it back tax free through Aug. 31.

The Aug. 31 or earlier rollover will not be a rollover for the one per 12-month rule. So even multiple RMDs can be rolled back provided it is by Aug. 31. How do you like them apples (a cultural reference tied to an earlier cultural reference)?

This take-back applies only to what would be a RMD. So a 50-year-old who took a non-RMD distribution that cannot be rolled because the 60-day period has expired or because it would be a prohibited second rollover is out of luck (well, except as allowed by the special COVID positive or adverse financial consequence distribution rules).

And for something completely different, the other day I was standing in line at the post office with about 15 of my closest friends, each of us looking like we were about to rob the place, and I (again) learned that tax questions can come my way at any time and in any place.

A young man, which means younger than me, had waited 15 minutes to get to the counter to ask a simple question: which form does he fill out to notify the IRS that his address had changed?

This did not go well for him. He was curtly told that IRS and the post office are two different creatures, albeit perhaps both creatures. He was made to leave by the walk of shame, sent back empty-handed to shelter at his (apparently new) home.

Wheeling into action I caught him as he passed me. I have particular skills that may be of value to you, I said. If you have not yet filed your 2019 tax return, simply place the new address on that return and you are done, I said.

Upon discovering that he had filed the return using the old address I remained imperturbable while informing him of a special IRS form to report such a change in one’s status.

A Google search led me to the special IRS number assigned to this reporting device – a Form 8822. He asked where to send it. I told him the form would tell him. So I directed him to go home, print the form, fill it out, and go to the post office to mail it.

The post office would get it to the IRS for sure, I said. He then thanked me and left the post office to go home to get the form to drop at the post office.

Then I remembered that IRS is not opening mail such as the Form 8822 because of its own sheltered employees. I adjusted my mask and stared straight ahead. I’m done with COVID tax questions.

James R. Hamill is the Director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.

 

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