The IRS plan year for 2019-2020 ends in June. For the month, we continued to monitor several significant guidance projects of interest to brokers, which include section 1446(f) withholding and information reporting guidance for virtual currencies. These remain open projects and are expected to roll into the IRS 2020-2021 plan year.
We take a look below at the third-quarter update to the IRS 2019-2020 Priority Guidance Plan and tax developments relating to digital signatures, the extension of the Form 5498 deadline, retirement plan distribution relief, QI certification deadline extension, the FATCA Online Registration User Guide and the list of reportable countries for which Form 1042-S reporting on bank deposit interest is required.
1. IRS priority guidance plan
On June 11, 2020, the IRS released its third quarter update to its 2019-2020 Priority Guidance Plan. The Guidance Plan contains a list of priority projects both open and completed that the IRS has targeted to complete for a plan year. The 2019-2020 plan year runs from July 1, 2019 through June 30, 2020.
The third quarter update showed 25 additional projects which have been published or released during the period from January 1, 2020 through March 31, 2020.
The two significant guidance projects we have been monitoring relating to final regulations under section 1446(f) (involving broker withholding on proceeds paid to non-U.S. investors on sales of publicly traded partnerships) and information reporting for virtual currency transactions remained open items in the third quarter update. These projects are likely to be rolled over into the 2020-2021 Priority Guidance Plan.
The IRS also requested feedback on additional priority items that should be included in the 2020-2021 Priority Guidance Plan. Comments are requested to be submitted by July 22, 2020.
2. Form 5498 deadline extended
Pursuant to Notice 2020-35, the IRS is providing relief requested by brokers and other financial institutions that are required to file Form 5498 for IRA contributions made by customers. Previously, the deadline for filing Form 5498 had been extended from June 1 to July 15, 2020. The new notice extends the due date of Form 5498 relating to the 2019 tax year to August 31, 2020. This provides custodians and trustees additional time to prepare Forms 5498 since the IRA contribution deadline had been extended to July 15, 2020.
3. Additional relief on repayment of retirement plan distributions
The IRS also released Notice 2020-51 which provides additional relief for payors and plan participants with respect to retirement plan/IRA distributions which may have been made in 2020 initially or erroneously as required minimum distributions (RMDs). Confusion existed this year since the SECURE Act passed in December 2019 changed the age at which RMDs need to be taken, and the CARES Act passed in March 2020 (as part of COVID-19-related relief) waived RMDs altogether for 2020.
The new notice provides relief, in part, for plan participants who may have taken early distributions intended as 2020 RMDs. In particular, the notice allows additional time for such a participant to repay or rollover such distributions to an eligible plan by August 31, 2020 to avoid tax on the distributed amounts.
4. Updated internal memo on acceptance of digital signatures and electronic transmission
In an internal memorandum dated June 12, 2020, the IRS updated its prior March memorandum on interim procedures for accepting digital signatures and electronic transmissions due to COVID-19 concerns. The memorandum allows the IRS to accept certain forms or documents with signatures that are scanned or photographed or signed digitally (e.g., DocuSign). In addition, it provides procedures for alternative transmission methods, such as procedures to follow when accepting or sending documents using email attachments.
The memorandum only covers certain documents: extensions of statute of limitations on assessment or collection, waivers of statutory notices of deficiency and consents to assessment, agreements to specific tax matters or tax liabilities, and any other statement or form needing the signature of a taxpayer or representative traditionally collected by IRS personnel outside of standard filing procedures.
The June memorandum clarifies guidance relating to electronic transmissions and extends the applicability period of the guidance through the end of 2020.
5. QI/WP/WT certification deadline extended
On its website, the IRS has announced that qualified intermediaries, withholding foreign partnerships and withholding foreign trusts that have periodic certifications due July 1, 2020 will obtain an automatic extension until December 15, 2020 to submit these certifications. This extension is consistent with the one given for foreign financial institutions with respect to their FATCA certifications.
6. Update to FATCA registration system user guide
Publication 5118 – FATCA Online Registration User Guide, which provides guidance on utilizing the online system for FATCA status registrations and maintenance, has been updated with a new version dated May 2020.
7. Update to Reportable Countries List for Deposit Interest Payments
In Rev. Proc. 2020-15, the IRS has updated the list of countries with respect to which Form 1042-S reporting is required for bank deposit interest. Added to the list of reportable countries in this updated document is Singapore. The update is effective for interest payments made on or after January 1, 2021.