Title: IRA Preservation Act of 2019
Policy area: Taxation

Summary:
IRA Preservation Act of 2019
This bill modifies requirements for individual retirement accounts (IRAs). It requires the Department of the Treasury to make available to the public an overview of the laws and regulations related to IRAs and examples of common IRA errors and how to avoid them.
The bill amends the Internal Revenue Code to (1) reduce penalties for taxpayers who voluntarily correct certain IRA errors, including excess contributions and failures to take required minimum distributions; (2) 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; (3) repeal the tax disqualification penalty (loss of tax-exempt status) for accounts where employees engage in certain prohibited transactions; and (4) revise the statute of limitations for collecting certain taxes in connection with an IRA.
Treasury must expand the Employee Plans Compliance Resolution System to allow trustees, custodians, and issuers of IRAs to address inadvertent failures for which an IRA owner was not at fault.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4117 Introduced in House (IH)]

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116th CONGRESS
  1st Session
                                H. R. 4117

To reduce the disadvantages of individual retirement plans with respect 
to employer-sponsored retirement plans by helping taxpayers comply with 
 laws affecting individual retirement plans, by providing for reduced 
  penalties under the Internal Revenue Code of 1986 for certain self-
 corrections with respect to such laws, and by expanding the Employee 
   Plans Compliance Resolution System to cover certain errors under 
          individual retirement plans, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 30, 2019

  Mr. Kind (for himself and Mr. Kelly of Pennsylvania) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To reduce the disadvantages of individual retirement plans with respect 
to employer-sponsored retirement plans by helping taxpayers comply with 
 laws affecting individual retirement plans, by providing for reduced 
  penalties under the Internal Revenue Code of 1986 for certain self-
 corrections with respect to such laws, and by expanding the Employee 
   Plans Compliance Resolution System to cover certain errors under 
          individual retirement plans, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``IRA Preservation Act of 2019''.

SEC. 2. EDUCATION WITH RESPECT TO IRAS.

    The Secretary of the Treasury shall make available to the public 
the following information:
            (1) An overview of the laws and regulations related to 
        individual retirement plans (as defined in section 7701(a)(37) 
        of the Internal Revenue Code of 1986), including--
                    (A) limits on contributions;
                    (B) limits on deductions for contributions;
                    (C) rollovers;
                    (D) minimum required distributions;
                    (E) nonexempt 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.

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 which was made to an individual 
                retirement plan and which 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.--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 taxable year that 
                begins after the end of the taxable 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 plan which resulted in imposition of a tax 
                under subsection (a), and
                    ``(B) submits a return, during the correction 
                window, reflecting such tax (modified by this 
                subsection),
        the first sentence of subsection (a) shall be applied by 
        substituting `10 percent' for `50 percent'.
            ``(2) Correction window.--For purposes of this subsection, 
        the term `correction window' means the period of time beginning 
        on the data on which the tax under subsection (a) is imposed 
        with respect to a shortfall of distributions from an individual 
        retirement plan, 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 taxable year that 
                begins after the end of the taxable year in which the 
                tax under subsection (a) is imposed.''.

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

    (a) Elimination of Additional Tax on Certain Distributions.--
Section 72(t)(2)(A) 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 inserting after clause (viii) the following new 
        clause:
                            ``(ix) attributable to withdrawal of 
                        interest or other income earned on excess 
                        contributions (as defined in section 4973(b) 
                        (without regard to the second to last sentence 
                        thereof)) to an individual retirement plan.''.
    (b) Repeal of Tax Disqualification Penalty.--
            (1) In general.--Paragraph (2) of section 408(e) of the 
        Internal Revenue Code of 1986 is repealed.
            (2) Conforming amendments.--
                    (A) Section 408(e)(1) of the Internal Revenue Code 
                of 1986 is amended by striking ``(2) or''.
                    (B) Sections 220(e)(2), 223(e)(2), and 530(e) of 
                the Internal Revenue Code of 1986 are each amended by 
                striking ``paragraphs (2) and (4) of section 408(e)'' 
                and inserting ``section 408(e)(4)''.
                    (C) Section 4975(c)(3) of the Internal Revenue Code 
                of 1986 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.--Section 6501(l) of the Internal 
Revenue Code of 1986 is amended--
            (1) in paragraph (1), by inserting ``(other than with 
        respect to an individual retirement plan)'' after ``section 
        4975''; and
            (2) by adding at the end the following new paragraph:
            ``(4) Individual retirement plans.--For purposes of any tax 
        imposed by section 4973, 4974, or 4975 in connection with an 
        individual retirement plan, 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 the liability 
        for such tax occurred. In the case of a person who is not 
        required to file an income tax return for such year--
                    ``(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. EXPANSION OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

    (a) EPCRS for IRAs.--The Secretary shall expand the Employee Plans 
Compliance Resolution System to allow trustees, custodians, and issuers 
of individual retirement plans (as defined in section 7701(a)(37) of 
the Internal Revenue Code of 1986) to address inadvertent failures for 
which the owner of an individual retirement plan was not at fault, 
including (but not limited to)--
            (1) waivers of the excise tax which would otherwise apply 
        under section 4974 of the Internal Revenue Code of 1986;
            (2) under the self-correction component of the Employee 
        Plans Compliance Resolution System, waivers of the 60-day 
        deadline for a rollover where the deadline is missed for 
        reasons beyond the reasonable control of the account owner; and
            (3) rules permitting a nonspouse beneficiary to return 
        distributions to an inherited individual retirement plan 
        described in section 408(d)(3)(C) of the Internal Revenue Code 
        of 1986 in a case where, due to an inadvertent error by a 
        service provider, the beneficiary had reason to believe that 
        the distribution could be rolled over without inclusion in 
        income of any part of the distributed amount.
    (b) Required Minimum Distribution Corrections.--The Secretary shall 
expand the Employee Plans Compliance Resolution System to allow plans 
to which such system applies and trustees, custodians, issuers, and 
owners of individual retirement plans to self-correct, without an 
excise tax, any inadvertent failures pursuant to which a distribution 
is made no more than 180 days after it was required to be made.
    (c) Inadvertent Failure.--For purposes of this section--
            (1) In general.--Except as provided in paragraph (2), the 
        term ``inadvertent failure'' means a failure that occurs 
        despite the existence of practices and procedures which--
                    (A) satisfy the standards set forth in section 4.04 
                of Revenue Procedure 2018-52 (or any successor 
                provision); or
                    (B) satisfy similar standards in the case of an 
                individual retirement plan.
            (2) Correction by owner of individual retirement plan.--In 
        the case of a correction by an owner of an individual 
        retirement plan under subsection (b), the term ``inadvertent 
        failure'' means a failure due to reasonable cause.

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) In general.--The amendments made by this Act shall 
        apply to any determination of or affecting liability for taxes, 
        interest, or penalties which is made on or after the date of 
        the enactment of this Act, without regard to whether the 
        conduct upon which the determination is based occurred before 
        such date of enactment. Notwithstanding the preceding sentence, 
        nothing in the amendments made by section 4(a) shall be 
        construed to create an inference with respect to the law in 
        effect prior to the effective date of such amendments.
            (2) 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) (as added by this 
        section) 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--
                    (A) 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
                    (B) the last day of the second taxable year that 
                begins after the taxable 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.
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