A monthly roundup of recent important tax developments affecting practitioners.

• Author: Schreiber, Sally P.
• Position: NEWS NOTES

From the IRS

Taking CARES Act distributions from qualified plans

The IRS explained on June 19 how qualified individuals can take coronavirus-related loans and distributions from eligible retirement plans (Notice 2020-50). Qualified individuals receive favorable tax treatment for those distributions under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.

Distributions: A coronavirus-related distribution is not subject to the Sec. 72(t) 10% additional tax (and it is also not subject to the Sec. 72(t) (6) 25% additional tax for certain distributions from SIMPLE IRAs).These distributions are generally includible in income over a three-year period, and, to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan within a three-year period, will not be includible in income.

Plan loans: The CARES Act also increases the allowable plan loan amount under Sec. 72(p) from $50,000 to $100,000 and permits a suspension of payments for plan loans outstanding on or after March 27,2020, that are made to qualified individuals.

Qualified individuals: A qualified individual is defined under the CARES Act as an individual:

* Who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC) (including a test authorized under the Federal Food, Drug, and Cosmetic Act);

* Whose spouse or dependent (defined under Sec. 152) is diagnosed with COVID-19 by a test approved by the CDC (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or

* Who experiences adverse financial consequences as a result of:

* The individual's being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;

* The individual's being unable to work due to lack of child care due to COVID-19; or

* The closing or reducing of hours of a business owned or operated by the individual due to COVID-19.

In addition, under the authority granted to the IRS to add other factors to define a qualified individual, the notice adds to the qualified individual definition individuals who suffer adverse financial consequences as a result of:

* Having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or the start date for a job delayed due to COVID-19;

* The individual's spouse or a member of the individual's household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of child care due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or the start date for a job delayed due to COVID-19; or

* Closing or reducing of hours of a business owned or operated by the individual's spouse or a member of the individual's household due to COVID-19.

In applying these additional factors, a member of the individual's household is someone who shares the individual's principal residence.

Reporting: Notice 2020-50 also provides guidance on how plans may report coronavirus-related distributions and how individuals may report these distributions on their individual federal income tax returns. For example, individuals may elect to report their coronavirus-related distributions ratably over a three-year period or include the full amount in income in the year of distribution by making an irrevocable election in their tax return for the year of distribution.

Rollovers: The notice also explains how individuals may roll over eligible funds to a qualified retirement plan or treat the distribution as a loan to repay over a three-year period.

Coronavirus pandemic prompts IRS to extend deadlines, relax QOZ rules

In Notice 2020-39, the IRS extended some deadlines for investing in qualified opportunity funds (QOF) and relaxed some investment requirements to make it easier for QOF investors to deal with the coronavirus pandemic.

The QOF program created a process for designating certain low-income communities and...