Do SECURE 2.0 Act statute of limitations change for IRA excise taxes apply to past tax years?

Submitted by Jonathan Williamson on Tue, 2023-01-03 02:01

The SECURE 2.0 Act makes changes to statute of limitations start date for IRC 4973 and IRC 4974, to include filing of form 1040. The act says that the pertinent changes take effect upon the enactment of the act.

Do these changes apply to past tax years also? For instance, would a hypothetical taxpayer who timely filed a form 1040 for tax year 2010, when they made an IRA overcontribution, with no excise tax assessment made by the IRS so far, be covered by the new law?



Submitted by Alan - IRA critic on Tue, 2023-01-03 03:00

Sec 313 does not clearly address your question. The IRS will have to provide clarity at some point. 

Submitted by Jonathan Williamson on Tue, 2023-01-03 06:45

Thank you Alan for the response. Here is my thinking, correct me where you may disagree or think the Code is unclear. Currently, after the changes, IRC 6501 says: “… the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed …“AND” … for purposes of any tax imposed by section 4973 or 4974 in connection with an individual retirement plan, the return referred to in this section shall include the income tax return filed by the person on whom the tax under such section is imposed for the year in which the act (or failure to act) giving rise to the liability for such tax occurred. ” The job of the IRS is among other things to enforce the IRC. How would the IRS have the authority to assess today a tax year 2010 excise tax with a timely filed 1040? I am trying to understand your concern. Thank you.

Submitted by Alan - IRA critic on Tue, 2023-01-03 16:14

My concern is that the IRS could treat this provision as applying only to returns filed after enactment. If this is applied retroactively, would taxpayers who paid excise taxes on a 5329 in prior years based on the prior lack of an SOL be inclined to file for a refund of excise taxes and/or interest already paid if some of these taxes would not have been due under the new SOLs?  Or if some of the very few that filed precautionary 5329 forms showing 0s to start the 3 year SOL for potential excess contributions now have those overridden by a 6 years SOL? It would have been useful if the Secure Act 2.0 provisions were more specific. Given the 3+ years for the IRS to issue Regs for Secure 1.0, it is very likely that the sheer number of provisions included in 2.0 will take as long since the IRS will probably address provisions now in effect as of enactment before the others.

Submitted by Jonathan Williamson on Tue, 2023-01-03 18:06

Most respectfully, I personally feel like the Code is clear. Please tell me why you disagree. My understanding is any assessment that was timely at the time the assessment was issued can be collected later, even when the limitations period has expired. The act says that Sec 313 is effective on date of enactment (December 29), while many sections are specifically effective only for future tax years. The IRS could properly assess most form 1040 timely filing taxpayers for tax year 2010 on December 28 of 2022, and then the period would have expired on December 30 of 2022, to where the IRS would not be able to assess any more. What statutory basis would a taxpayer that got assessed on December 28 have to seek out a refund for an assessment prior to that date? The IRS was on firm legal footing to do so, since the law says it is effective only on that specific date. 

Submitted by Jonathan Williamson on Tue, 2023-01-03 18:45

If you filed a form 5329, then assuming the IRS does not assert fraud, the primary three year SOL holds, the text in Sec 313 is more clear on this point than any other. Section 313 text says:  PERIOD FOR ASSESSMENT IN CASE OF INCOME TAX RETURN.—In any case in which the return with respect to a tax imposed by section 4973 is the individual’s income tax return for purposes of this section, subsection (a) shall be applied by substituting a 6-year period in lieu of the 3-year period otherwise referred to in such subsection, stating explicitly that the 6 year SOL is only relevant for people who use the 1040 path instead of the 5329 path, and also only for excess contributions (IRC 4973) and not excess accumulations (IRC 4974) which is a 3 year SOL.

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