Distributions 3year payment

[BOB W]

I have a client that jumped the coral fence this time. Both he and his wife took IRA and Non IRA distributions. Hubby took $235,000 and wife took $144,000 (IRA). They want to be excluded from 10% penalty and to spread tax over 3 years.
They were both on UI so they seem to qualify (financial hardship). Looks like the $100,000 limitation is per taxpayer, so $200,000? Is the $100,000 only for the 10% penalty or/and the amount that can be spread over 3 years?

[ATSMAN]

If I recall the language was the aggregate amount of distributions received by an individual which may be treated as coronavirus related distributions for any tax year shall not exceed $100,000.

So basically you are capped at $100K for the 10% waiver and the 3 year spread. The excess will be taxed in the current year plus 10% penalty.

[New York Enrolled Agent]

I have a client that jumped the coral fence this time. Both he and his wife took IRA and Non IRA distributions. Hubby took $235,000 and wife took $144,000 (IRA). They want to be excluded from 10% penalty and to spread tax over 3 years.
They were both on UI so they seem to qualify (financial hardship). Looks like the $100,000 limitation is per taxpayer, so $200,000? Is the $100,000 only for the 10% penalty or/and the amount that can be spread over 3 years?

IRS Notice 2020-50 is an invaluable source of information for COVID related distributions

[BOB W]

Ouch!!! Humm....

So $100,000 for each is not allowed?

[BOB W]

IRS Notice 2020-50 is an invaluable source of information for COVID related distributions

I've read through all the material, but being a simple person, I have questions, regularly.

Just a follow up, I see it as, each taxpayer of a joint return is eligible for $100,000 limit each. Can I get a confirmation?

[Rapid Robert]

Just a follow up, I see it as, each taxpayer of a joint return is eligible for $100,000 limit each. Can I get a confirmation?

Yes. IRAs are inherently individual. In the Notice referenced by NYEA, the word "married" never appears, and the word "spouse" only appears in regard to determining if there was a COVID hardship, not the dollar amounts.

But I agree it is not always crystal clear. For example, wasn't the 2020 above the line charitable deduction set at $300 "per taxpayer", and yet the IRS somehow determined that two taxpayers electing to file jointlyl were actually just a single taxpayer for this purpose?

[BOB W]

Yes. IRAs are inherently individual. In the Notice referenced by NYEA, the word "married" never appears, and the word "spouse" only appears in regard to determining if there was a COVID hardship, not the dollar amounts.

But I agree it is not always crystal clear. For example, wasn't the 2020 above the line charitable deduction set at $300 "per taxpayer", and yet the IRS somehow determined that two taxpayers electing to file jointlyl were actually just a single taxpayer for this purpose?

Part of my problem is that Hubby's distribution is not from an IRA, Not sure what it's character is other than a code 1 on the 1099R.

[BOB W]

Actually non IRA should not be a problem if it was subject to penalty. It is a retirement plan.

[BOB W]

I wonder what year 2 will look like when the 2nd inclusion of the 3 part taxable income will look like and how to report it. It appears that it is not a deferral of taxes but a deferral of income reporting.

[Burke]

Last time this sort of deferral happened, back when you could make IRA conversions to ROTHs up to $100K over more than one year, as I remember, it did not show up at all on the current year's return, but automatically popped up in your software on 2nd and succeeding year's. Of course, this is IF the client came back to you. If not, and they didn't report on the 2nd+ years, I am sure they got a CP2000 eventually as IRS tracked them. I believe it appeared under IRA distributions on the succeeding years.

[BOB W]

Last time this sort of deferral happened, back when you could make IRA conversions to ROTHs up to $100K over more than one year, as I remember, it did not show up at all on the current year's return, but automatically popped up in your software on 2nd and succeeding year's. Of course, this is IF the client came back to you. If not, and they didn't report on the 2nd+ years, I am sure they got a CP2000 eventually as IRS tracked them. I believe it appeared under IRA distributions on the succeeding years.

Good to know.....

I haven't called my client back yet, but he thinks the whole $379,000 will be penalty free and only pay taxes on 1/3rd ($126,333) this year.. What a shock he is in for..... And no he didn't call me first, thank God.

[Lion]

Form 8915-E will spread the income over three years, no more than $100,000 per person WHO HAS A COVID-RELATED REASON FOR THE DISTRIBUTION.

[Twin Turbo Z]

Had a few that way too. Took out more than the 100k. Proseries will carry the averaging over. At least thats what I was told by support. So I imagine all other software providers will too. Same as the $500 first time homeowner credit from a few years back. The one you had to repay. But we are making client notes of the carry forward amount just in case there is a screwup with next years software.