Restorative Payments – Private Ruling?
Does anyone on here have any experience with how often the IRS requires a private ruling for a restorative payment?
If the case is straightforward (for example, money was stolen from retirement account, settlement payment is replacing part of stolen money, settlement agreement identifies it as a restorative payment, payment is put back in retirement account), could the IRS still require a private ruling? Or are restorative payments common enough now that auditors are familiar with them and would accept documentation from the settlement and retirement account to verify?
Permalink Submitted by Alan - IRA critic on Fri, 2023-10-20 19:18
Since PLRs cost upward of 20k and take a long time for a ruling, they are best avoided. If an IRA custodian resists accepting a restorative payment, it makes more sense to check with a different custodian, typically a large brokerage custodian, since they have resources to be familiar with this situation. If the custodian accepts the deposit there is little chance that the IRS would question it. Again, how the legal firm distributes the payment is the key to having a smooth transaction, with a direct transfer check being most desirable.
Permalink Submitted by Jennifer Hansen on Sat, 2023-10-21 00:12
Thank you, that is great to hear. The scenario I worry about the most is if the payer files a 1099R or 1099Misc after they said they wouldn’t…. so the payment was deposited as a transfer with the new custodian but now there’s this weird 1099 that doesn’t match up and payer is not willing to work with payees. (Lawyers aren’t going to file it, they are willing to work with payees) Is there a scenario where IRS looks at that and it triggers them to require a private ruling for the restorative payment or would they most likely accept an explanation in the taxes for why there was a 1099 that shouldnt’ have been?
Permalink Submitted by Jennifer Hansen on Sat, 2023-10-21 00:12
Thank you, that is great to hear. The scenario I worry about the most is if the payer files a 1099R or 1099Misc after they said they wouldn’t…. so the payment was deposited as a transfer with the new custodian but now there’s this weird 1099 that doesn’t match up and payer is not willing to work with payees. (Lawyers aren’t going to file it, they are willing to work with payees) Is there a scenario where IRS looks at that and it triggers them to require a private ruling for the restorative payment or would they most likely accept an explanation in the taxes for why there was a 1099 that shouldnt’ have been? Thank you for your help!