IRA Preservation Act of 2017

Summary: IRA Preservation Act of 2017  This bill modifies the requirements for Individual Retirement Arrangements (IRAs) to: (1) require the Department of the Treasury to provide taxpayers with certain educational materials and notifications, and (2) modify various penalties.  Treasury must provide the public with: (1) an overview of the laws and regulations related to IRAs, and (2) examples of common errors with respect to the laws and regulations and instructions on how to avoid the errors.  Treasury must also provide individual taxpayers with specified notices that identify critical failure points, inconsistencies, or errors and include advice on avoiding failures or errors.  The bill amends the Internal Revenue Code to:   reduce penalties for taxpayers who voluntarily correct certain IRA errors, including excess contributions and failures to take required minimum distributions;   eliminate the 10% additional tax on early distributions that are attributable to withdrawal of interest or other income earned on excess contributions to an IRA;   repeal the tax disqualification penalty (loss of tax-exempt status) for accounts where employees engage in certain prohibited transactions; and   revise the statute of limitations for collecting certain taxes in connection with an IRA.  

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``IRA Preservation Act of 2017''.

SEC. 2. EDUCATION AND OUTREACH.

    (a) Information Made Available.--The Secretary shall make available 
to the public the following information:
            (1) An overview of the laws and regulations related to 
        individual retirement arrangements, including--
                    (A) limits on contributions;
                    (B) limits on deductions for contributions;
                    (C) rollovers;
                    (D) minimum required distributions;
                    (E) non-exempt prohibited transactions; and
                    (F) tax consequences for early distributions.
            (2) Examples of common errors by taxpayers with respect to 
        the laws and regulations described in paragraph (1) and 
        instructions on how to avoid such errors.
    (b) Targeted Advance Notices.--Based on the information on common 
errors identified under subsection (a)(2), the Secretary shall identify 
critical failure points and cause notices to be issued to individual 
taxpayers in advance of their reaching such critical failure points, 
with advice on how to avoid such failures.
    (c) Soft Notice Program.--
            (1) In general.--The Secretary shall, at such time as the 
        Secretary considers appropriate, cause a notice under this 
        subsection to be issued to a taxpayer if the Secretary detects 
        a material inconsistency between or among any tax returns or 
        reports filed under the Internal Revenue Code of 1986, 
        including an individual tax return and a third-party 
        information return, that could represent tax liability incurred 
        by the taxpayer because of--
                    (A) an excess contribution to an individual 
                retirement arrangement as described in section 4973 of 
                the Internal Revenue Code of 1986;
                    (B) an excess accumulation in an individual 
                retirement arrangement as described in section 4974 of 
                such Code; or
                    (C) any other error associated with an individual 
                retirement arrangement that the Secretary has the 
                capability to detect automatically because of 
                inconsistencies in returns filed or reports made under 
                such Code.
            (2) Exceptions.--The Secretary is not required to issue a 
        notice under paragraph (1) with respect to an individual 
        retirement arrangement in any case in which the Secretary--
                    (A) intends to initiate an audit of the individual 
                retirement arrangement;
                    (B) has reason to believe there is no outstanding 
                tax liability attributable to an excess contribution, 
                excess accumulation, or other error described in 
                subparagraph (A), (B), or (C) of paragraph (1); or
                    (C) has other good cause consistent with the 
                purposes of this Act.
            (3) Content.--A notice issued under paragraph (1) to a 
        taxpayer with respect to an individual retirement arrangement 
        shall include--
                    (A) an explanation of taxes that could be owed, as 
                of the date of the notice, because of an excess 
                contribution, excess accumulation, or other error 
                described in subparagraph (A), (B), or (C) of paragraph 
                (1), including, if applicable, an explanation of the 
                reduced rates of tax available under section 4973(i) or 
                4974(e), as the case may be, of the Internal Revenue 
                Code of 1986 for voluntary correction of an excess 
                contribution or excess accumulation described in 
                subparagraph (A) or (B) of paragraph (1) if voluntary 
                correction is made within the correction window 
                applicable under section 4973(i) or 4974(e), as the 
                case may be, of such Code;
                    (B) a statement that any failure to remit any taxes 
                owed may result in an audit;
                    (C) in the case of an excess contribution or excess 
                accumulation described in subparagraph (A) or (B) of 
                paragraph (1), an explanation of taxes that could be 
                owed because of such excess contribution or excess 
                accumulation, if voluntary correction is not made 
                within the correction window applicable under section 
                4973(i) or 4974(e), as the case may be, of the Internal 
                Revenue Code of 1986; and
                    (D) a copy of the applicable form to be used by the 
                taxpayer to remit taxes owed with respect to the 
                individual retirement arrangement because of the 
                potential excess contribution, excess accumulation, or 
                other error described in the notice.
            (4) Coordination with self-correction procedures.--A notice 
        issued under this paragraph may not be considered as initiating 
        an audit or otherwise demanding payment for purposes of section 
        4973(i) or 4974(e) of the Internal Revenue Code of 1986.

SEC. 3. REDUCTION OF EXCISE TAXES FOR VOLUNTARY CORRECTION OF COMMON 
              IRA ERRORS.

    (a) Reduction in Excise Tax on Excess Contributions.--Section 4973 
of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new subsection:
    ``(i) Reduction of Tax in Certain Cases.--
            ``(1) Reduction.--In the case of a taxpayer who--
                    ``(A) corrects, during the correction window, an 
                excess contribution that was made to an individual 
                retirement arrangement and that resulted in imposition 
                of a tax under paragraph (1) or (3) of subsection (a), 
                and
                    ``(B) submits a return, during the correction 
                window, reflecting such tax (as modified by this 
                subsection),
        the first and second sentences of subsection (a) shall be 
        applied by substituting `3 percent' for `6 percent' each place 
        it appears.
            ``(2) Correction window defined.--For purposes of this 
        subsection, the term `correction window' means the period 
        beginning on the date on which the tax under subsection (a) is 
        imposed with respect to an excess contribution, and ending on 
        the earlier of--
                    ``(A) the date on which the Secretary initiates an 
                audit, or otherwise demands payment, with respect to 
                the excess contribution, or
                    ``(B) the last day of the second tax year that 
                begins after the end of the tax year in which the tax 
                under subsection (a) is imposed.''.
    (b) Reduction in Excise Tax on Failures To Take Required Minimum 
Distributions.--
            (1) In general.--Section 4974 of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        subsection:
    ``(e) Reduction of Tax in Certain Cases.--
            ``(1) Reduction.--In the case of a taxpayer who--
                    ``(A) corrects, during the correction window, a 
                shortfall of distributions from an individual 
                retirement arrangement that resulted in imposition of a 
                tax under subsection (a), and
                    ``(B) submits a return, during the correction 
                window, reflecting such tax (as modified by this 
                subsection),
        the first sentence of subsection (a) shall be applied by 
        substituting `5 percent' for `50 percent'.
            ``(2) Correction window defined.--For purposes of this 
        subsection, the term `correction window' means the period of 
        time beginning on the date on which the tax under subsection 
        (a) is imposed with respect to a shortfall of distributions 
        from an individual retirement arrangement, and ending on the 
        earlier of--
                    ``(A) the date on which the Secretary initiates an 
                audit, or otherwise demands payment, with respect to 
                the shortfall of distributions, or
                    ``(B) the last day of the second tax year that 
                begins after the end of the tax year in which the tax 
                under subsection (a) is imposed.''.
            (2) Coordination with waiver provisions.--
                    (A) In general.--Subsection (d) of section 4974 of 
                the Internal Revenue Code of 1986 is amended--
                            (i) by redesignating paragraphs (1) and (2) 
                        as subparagraphs (A) and (B), respectively;
                            (ii) by striking ``If the taxpayer'' and 
                        inserting:
            ``(1) Waiver.--Subject to paragraph (2), if the taxpayer''; 
        and
                            (iii) by adding at the end the following:
            ``(2) Exception.--The Secretary may not waive the tax 
        imposed by subsection (a) with respect to an individual 
        retirement arrangement.''.
                    (B) Authority to compromise.--The amendments made 
                by subparagraph (A) shall not limit the authority of 
                the Secretary of the Treasury under section 7121 or any 
                other provision of the Internal Revenue Code of 1986 to 
                compromise the amount of any tax due under section 4974 
                of such Code, except that, in determining the amount of 
                any such compromise, the Secretary may take into 
                account the availability, under section 4974(e) of such 
                Code, of voluntary correction during the correction 
                window (as defined in section 4974(e)(2) of such Code).

SEC. 4. HARMONIZATION OF TREATMENT OF IRAS WITH EMPLOYER PLANS.

    (a) Elimination of Additional Tax on Certain Distributions.--
Subparagraph (A) of section 72(t)(2) of the Internal Revenue Code of 
1986 is amended--
            (1) by striking ``or'' at the end of clause (vii);
            (2) by striking the period at the end of clause (viii) and 
        inserting ``, or''; and
            (3) by adding at the end the following new clause:
                            ``(ix) attributable to withdrawal of 
                        interest or other income earned on excess 
                        contributions to an individual retirement 
                        arrangement.''.
    (b) Repeal of Tax Disqualification Penalty.--
            (1) In general.--Paragraph (2) of subsection (e) of section 
        408 of the Internal Revenue Code of 1986 is repealed.
            (2) Conforming amendments.--
                    (A) Section 408(e)(1) of such Code is amended by 
                striking ``(2) or''.
                    (B) Sections 220(e)(2), 223(e)(2), and 530(e) of 
                such Code are amended by striking ``paragraphs (2) and 
                (4) of section 408(e)'' each place it appears and 
                inserting ``paragraph (4) of section 408(e)''.
                    (C) Section 4975(c)(3) of such Code is amended by 
                striking ``the account ceases to be an individual 
                retirement account by reason of the application of 
                section 408(e)(2)(A) or if''.
    (c) Statute of Limitations.--Subsection (l) of section 6501 of the 
Internal Revenue Code of 1986 is amended--
            (1) in paragraph (1), by inserting ``(other than for 
        individual retirement arrangements)'' after ``section 4975''; 
        and
            (2) by adding at the end the following new paragraph:
            ``(4) Individual retirement arrangements.--For purposes of 
        any tax imposed by section 4973, 4974, or 4975 in connection 
        with an individual retirement arrangement, the return referred 
        to in this section shall be 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 such 
        liability for such tax occurred. In the case of a person who is 
        not required to file an income tax return for the year in which 
        the act (or failure to act) giving rise to such liability for 
        such tax occurred--
                    ``(A) the return referred to in this section shall 
                be the income tax return that such person would have 
                been required to file but for the fact that such person 
                was not required to file such return, and
                    ``(B) the 3-year period referred to in subsection 
                (a) with respect to the return shall be deemed to begin 
                on the date by which the return would have been 
                required to be filed (excluding any extension 
                thereof).''.

SEC. 5. INDIVIDUAL RETIREMENT ARRANGEMENT DEFINED.

    (a) In General.--For purposes of this Act, the term ``individual 
retirement arrangement'' means an individual retirement account, an 
individual retirement annuity, and a Roth IRA described in sections 
408(a), 408(b), and 408A, respectively, of the Internal Revenue Code of 
1986.
    (b) Internal Revenue Code.--Section 408 of the Internal Revenue 
Code of 1986 is amended--
            (1) by redesignating subsection (r) as subsection (s); and
            (2) by inserting after subsection (q) the following new 
        subsection:
    ``(r) Individual Retirement Arrangement Defined.--For purposes of 
this section and sections 72(t), 4973, 4974, and 6501(l), the term 
`individual retirement arrangement' means an individual retirement 
account described in section 408(a), an individual retirement annuity 
described in section 408(b), and a Roth IRA described in section 
408A.''.

SEC. 6. EFFECTIVE DATE.

    (a) In General.--Subject to subsections (b) and (c), this Act and 
the amendments made by this Act shall take effect on the date of the 
enactment of this Act.
    (b) Transition Provisions.--
            (1) Requests for waivers.--
                    (A) In general.--Notwithstanding the amendments to 
                section 4974(d) of the Internal Revenue Code of 1986 
                made by section 3(b)(2) of this Act, a taxpayer may, at 
                any time before or during the transition period, file a 
                written request for a waiver under section 4974(d) of 
                such Code, as in effect on the day before the date of 
                the enactment of this Act. The Secretary of the 
                Treasury shall consider any such request as if the 
                amendments made by section 3(b)(2) had not been made.
                    (B) Transition period defined.--For purposes of 
                this paragraph, the term ``transition period'' means 
                the period beginning on the date of the enactment of 
                this Act and ending on the date that is 1 year after 
                such date of enactment.
            (2) Applicability to certain prior acts.--
                    (A) In general.--Except as provided in paragraph 
                (1), the amendments made by this Act shall apply to any 
                determination of or affecting liability for taxes, 
                interest, or penalties that is made on or after the 
                date of the enactment of this Act, even if the conduct 
                upon which the determination is based occurred before 
                such date of enactment.
                    (B) Calculation of correction window in certain 
                cases.--In the case of an error that would have been 
                eligible for correction under section 4973(i) or 
                4974(e) of the Internal Revenue Code of 1986 if tax had 
                not been imposed under 4973(a) or 4974(a), as the case 
                may be, of such Code before the date of the enactment 
                of this Act, the correction window referred to in 
                sections 4973(i) and 4974(e) of such Code shall be the 
                period beginning on the date on which such tax was 
                imposed and ending on the earlier of--
                            (i) the date on which the Secretary of the 
                        Treasury initiates an audit or otherwise 
                        demands payment with respect to the conduct 
                        described in section 4973(a) or 4974(a), as the 
                        case may be, of such Code; or
                            (ii) the last day of the second tax year 
                        that begins after the tax year in which the 
                        date of the enactment of this Act occurs.
    (c) Implementation.--Section 2 shall be implemented as soon as 
reasonably practicable after the enactment of this Act but in no case 
later than the date that is 1 year after the date of the enactment of 
this Act.