IRS Q&As Address Open Questions on CARES Act CRD and Loan Administration

On May 4, 2020, the IRS issued Q&As on the coronavirus-related distribution and loan provisions added by Section 2022 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Section 2022 of the CARES Act (discussed in the March Monthly Minute) temporarily:

  • Expands distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans and provides the opportunity for the qualified individual to repay the coronavirus-related distribution.  
  • Increases plan loan limits a qualified individual may receive from certain eligible retirement plans.
  • Authorizes the suspension of certain participant plan loan repayments

Below are some highlights of the Q&As:

  • The IRS and Treasury anticipate issuing guidance on Section 2022 of the CARES Act in the “near future.” The IRS and Treasury anticipate the guidance will apply the principles of Notice 2005-92 which was issued in connection with the distribution and loan provisions of the Katrina Emergency Tax Relief Act of 2005 (“KETRA”) to the extent the provisions of Section 2022 of the CARES Act is substantially similar to the provisions of KETRA addressed in the notice.
  • The coronavirus-related distribution and loan provisions are optional.
  • If a plan does not adopt the coronavirus-related distribution provisions, a participant who receives a 2020 distribution and is a qualified individual still can take advantage of the favorable tax treatment using Form 8951-E (which is expected to be available before December 31, 2020).
  • The coronavirus-related distribution and loan provisions apply only to qualified individuals. The IRS restates the criteria for determining whether an individual is a qualified individual, but also states they are considering expanding the list of factors.
  • A plan administrator may rely on an employee’s certification that he or she is a qualified individual unless the plan administrator has actual knowledge to the contrary.  
  • A qualified individual must have a distributable event in order to take a coronavirus-related distribution from a defined benefit plan or money purchase pension plan. 

KMK Comment: This guidance provides some basic clarification regarding these provisions of the CARES Act, but there are still a number of significant unanswered questions that have not been addressed. It is unclear exactly when in the “near future” more detailed regulations will be issued.

KMK Law articles and blog posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. The laws/regulations and interpretations thereof are evolving and subject to change. Although we will attempt to update articles/blog posts for material changes, the article/post may not reflect changes in laws/regulations or guidance issued after the date the article/post was published. Please consult with counsel of your choice regarding any specific questions you may have.

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