Tax relief for your generic “taxpayer” often does not apply to banks and brokers with respect to their tax information reporting obligations, and, more often than not, such “relief” engenders additional work for them. The tax provisions arising with respect to the recent CARES Act and related IRS COVID-19 administrative relief announcements are a case in point.
While taxpayers are now able to extend their 2019 income tax filings and payments until July 15, 2020, the administrative relief has to a large extent by-passed domestic tax information reporting (Form 1099 and Form 1042-S reporting). Notice 2020-23, issued on April 9, however, roped in a plethora of other “time-sensitive” tax-related actions for relief and does extend the filing deadline to July 15, 2020 for Form 5498 with respect to IRA contributions. But relief even in this case is not without entanglements.
Among other functions, Form 5498 is filed by trustees of IRAs by May 31 (June 1 this year since May 31 falls on a Sunday) to report to the IRS and to the account holder IRA contributions made by the account holder for the prior calendar year. This deadline is intended to align with an April 15 filing/IRA contribution deadline that would apply in a “normal” tax reporting year. But since tax returns for 2019 are now due July 15, taxpayers also have until July 15, 2020 to make IRA contributions for 2019. The extension of Form 5498 filings to July 15 may allow brokers to capture more of the post-April 15 IRA contributions, but last-minute contributors may still be missed. Brokers would need to have a process in place for monitoring post-April 15 contributions and, more particularly, last minute contributions that would require corrections to its Form 5498 issuance.
Thinking about Form 5498, the CARES Act also allows participants in certain retirement plans (including IRAs) to request up to a $100,000 coronavirus-related early withdrawal penalty-free during calendar year 2020. The distribution can be repaid to the plan within 3 years as a rollover contribution to avoid income taxes on the distribution. Processes will need to be set in place to accommodate these changes and brokers will need to monitor Form 1099-R and Form 5498 changes to reflect coronavirus-related distributions and rollovers. In some ways, this may be similar to the birth and adoption early withdrawals allowed by the SECURE Act passed at the end of last year, in which case, there may be specific changes to Form 1099-R and new contribution codes for Form 5498.
Finally, also included in the list of “time-sensitive” actions eligible for “relief” under Notice 2020-23 (by cross-reference to Rev. Proc. 2018-58) are the cost basis transfer statements (section 6045A) required in broker-to-broker securities transfers (e.g., when account holder transfers her account from one broker to another) generally within 15 days of transfer and section 6045B filings (generally provided by securities issuers) with respect to corporate actions that affect cost basis. Such reporting, if due on or after April 15, 2020 and prior to July 15, 2020 would be due July 15, 2020. It is unclear whether these deadline postponements will be helpful to brokers; just as likely, brokers on the receiving end of such statements/filings may end up having to accommodate delayed information flows such as for section 6045B filings.
Suffice it to say that tax relief doesn’t mean the same to everyone. For domestic information tax reporting, relief is limited, though for brokers and banks with more of a global presence, there has been reporting relief granted by both the IRS and local country jurisdictions for FATCA and CRS reporting. But that is the subject of another post.