Sunday May 9, 2021
Texting Scam Warning From IRS
The IRS reminds taxpayers that it will not text them to ask for bank account information in order to make an Economic Impact Payment.
IRS Commissioner Chuck Rettig stated, "Criminals are relentlessly using COVID-19 and Economic Impact Payments as cover to try to trick taxpayers out of their money or identities. This scam is a new twist on those we've been seeing much of the year. We urge people to remain alert to these types of scams."
The scam message states the following: "You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment." The text then has a link to a web address.
The web address leads to a fraudulent website that claims to be the IRS' "Get My Payment" site. Taxpayers who access the fraudulent site are asked to enter personal and financial account information. This information is then used by fraudsters to steal identities and financial resources.
What should a person do if he or she receives this scam text? The IRS urges you to take a screen shot of the text of message and email it to phishing@IRS.gov. It also is helpful if you include the date and time for the message, a number that appeared on your Caller ID and the number of your cell phone.
Editor's Note: This scam is effective because there has been extensive media coverage of the negotiations between the Department of Treasury and the Speaker of the House on a new stimulus bill. While the bill has not passed, the negotiations are ongoing. The level of press and media attention may lead some individuals to conclude that a second stimulus payment is coming. This scam attempts to trap these vulnerable individuals and acquire their financial information.
Final Regulations on 2022 IRA Distribution Tables
In T.D. 9930 (Nov. 5, 2020), the IRS published final regulations on updated IRA distribution tables. The new tables will be used to calculate required distributions from most qualified retirement plans. Because these tables apply starting on January 1, 2022, they will reduce plan distributions in 2022.
Section 401(a)(9) provides rules for required minimum distributions (RMDs). The distributions may be taken over the life of an employee or the employee and a designated beneficiary.
The RMDs apply to individuals who attain age 72. If an individual is age 72 in August 2023, then the first distribution year will be 2023. The RMD in the first year may be taken during that year or by April 1 of the following year.
The new tables are an update for the Uniform Lifetime Table and are based on the age of the individual and a hypothetical beneficiary 10 years younger. There is one general exception. If a spouse is more than 10 years younger, then the calculated life expectancy must be used to determine the RMDs.
Generally, the tables will require beneficiaries who qualify for a life expectancy distribution to use the new Single Life Table and to calculate a distribution through the subtraction of one from the denominator each year. An exception continues to exist for surviving spouses who do not roll over the IRA or other plan into their qualified account. They are permitted to use the single life table with a recalculation each year.
The final regulations generally follow the proposed regulations (REG-132210-18) published on November 8, 2019. With the new Uniform Lifetime Table, there are longer life expectancies. A 72-year-old IRA owner will use a life expectancy of 27.4 years under the new table, compared with 25.6 years under the prior provisions.
The new Uniform Lifetime Table is based on the 2012 Individual Annuity Mortality Basic Table and the 2012 Individual Annuity Reserve Table. It advances these mortality tables with adjustments to year 2022 to reflect longer life expectancies.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) made two significant changes for retirement distribution rules. First, the starting age for required minimum distributions changed from 70½ to age 72. Second, with exceptions for a surviving spouse, a beneficiary less than 10 years younger than the IRA owner, a child or other heir with a disability or chronic illness, the plan distribution period will be a maximum of 10 years under the SECURE Act.
The new Uniform Life Table and Single Life Table set forth longer life expectancies. The life expectancies are increased by 11/24 to approximate monthly payments.
The new tables are effective on January 1, 2022. If an IRA owner attains age 70½ in February 2020, the regulations do not apply to the RMD for the 2021 distribution calendar year. However, they will apply to required distributions for 2022 and subsequent years.
There are transition rules for individuals who are current designated beneficiaries. If a designated beneficiary is age 75 in 2019 when the IRA owner passes away, then the distribution period in 2020 is 12.7 years under the Single Life Table and 11.7 years in 2021 (the original 12.7 years reduced by one in the denominator). For 2022, the distribution table changes to the new Single Life Table. The updated 14.1 year life expectancy for a 76-year-old is reduced by 2 and the calculation is completed with an expectancy of 12.1 years for 2022.
Legacy IRA Act Supported By Nonprofits
The Securing a Strong Retirement Act of 2020 (SSRA) is bipartisan legislation introduced by House Ways and Means Chairman, Richard Neal (D-MA), and Ranking Member Kevin Brady (R-TX). The SSRA included a modified version of the Legacy IRA Act.
Section 310 of SSRA increases the permitted qualified charitable distribution (QCD) under Section 408(d)(8)(A) from $100,000 to $130,000. In addition, SSRA permits a one-time election for a QCD to a life-income plan. While this may be completed only one time during life, it permits an IRA rollover of up to $130,000 to an immediate charitable gift annuity, a charitable remainder annuity trust or a standard charitable remainder unitrust. All payouts are ordinary income and must be paid to the qualified plan owner or owner and spouse.
Daniel J. Cardenali, President and CEO of Independent Sector and a coalition of nonprofits sent letters to Chairman Neal and Ranking Member Brady supporting the modified Legacy IRA Act. Cardenali was pleased that the bill will expand the charitable rollover contributions to Sections 401(k), 403(b) and 457 plans.
He also noted, "We are grateful that your legislation includes modified provisions of the Legacy IRA Act, which would enable seniors to make tax-free contributions from their individual retirement accounts and charities through life-income plans." Cardenali noted that many middle-class Americans are not able to make large IRA gifts during their lifetime because they need income. This provision permits these middle-income donors to receive substantial retirement income and benefit charities with a future gift.
A coalition of over 40 charities sent a similar letter expressing their support. The coalition noted, "The Legacy IRA provision--as part of the broader Securing a Strong Retirement Act--will encourage more charitable giving by enabling seniors to make tax-free contributions from their IRAs to charities through life-income plans." The coalition noted that this is a very favorable option for seniors that will incentivize more giving and help middle-income seniors to receive retirement payments.
The coalition concluded, "We strongly support the inclusion of the Legacy IRA Act as part of the Securing a Strong Retirement Act. America is stronger when everyone has the opportunity to give, to get involved, and to strengthen their communities."
Editor's Note: The coalition of over 40 nonprofits and associations is strongly supporting this modified version of the Legacy IRA Act. With strong support from charities and bipartisan agreement in Congress, there is a good chance for passage of SSRA in 2021. If it passes, the IRA rollovers to life-income plans will become available in January 2022.
Applicable Federal Rate of 0.4% for November -- Rev. Rul. 2020-22; 2020-45 IRB 1 (16 October 2020)
The IRS has announced the Applicable Federal Rate (AFR) for November of 2020. The AFR under Section 7520 for the month of November is 0.4%. The rates for October of 0.4% or September of 0.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.