Washington Hotline – May 11, 2021


Emergency Plans for Summer Disasters

In IR-2021-101, the Internal Revenue Service reminded everyone about National Hurricane Preparedness Week and National Wildfire Awareness Month. With the risk of a hurricane, tornado, flood, earthquake or fire disaster this summer, it is an excellent time to update your emergency plan.

Your physical security is a good starting point for your plan. With a hurricane or flood, there is often advanced warning, allowing affected individuals to move to a safe location. However, tornados, wildfires and earthquakes occur with little or no warning. It is important to designate a secure location and prepare an emergency evacuation plan in the event of a natural disaster.

An emergency plan should also include methods to protect your important documents and information.

1. Securing Your Key Documents — The original documents for your tax returns, birth certificates, deeds, vehicle titles and insurance policies should be kept in a waterproof container in a secure space. It is also helpful to make copies of these documents and save those in a different secure location. Another option is to scan the documents and create electronic files. Those electronic files could be stored on a flash drive or secure online server.

2. Document Your Valuables — If you experience a natural disaster, you may need to provide photos to support your insurance claims. While there will be ample opportunity to take photos of the damaged structure or its contents after the disaster, it is helpful to have “before and after” pictures. You may choose to take pictures of the outside and the inside of your home. If you have high value items such as a collection, it is important to take pictures of these items in advance.

You may consider using the disaster-loss workbooks in IRS Publication 584 as a guide. These may be helpful in listing your more valuable or expensive property.

3. Rebuilding and Reconstructing — After you experience an earthquake, fire, flood, hurricane, tornado or other disaster, you may need assistance recovering and rebuilding your records. The Reconstructing Records webpage on IRS.gov may be helpful to you. It explains specific methods to show the nature of losses for your home, vehicles and personal property.

4. IRS Disaster Assistance — If the Federal Emergency Management Agency declares a national disaster in your area, the IRS will usually postpone your tax-filing and tax-payment deadlines. If you are impacted by a natural disaster, you may contact the IRS disaster-response team at 866-562-5227.

You may also wish to review IRS Publication 2194, Disaster Resource Guide for Individuals and Businesses.

Proposed Expanded IRA Charitable Rollover

On May 5, the House Ways and Means Committee passed a bipartisan retirement bill. The Securing a Strong Retirement Act of 2021 (H.R. 2954) was approved on a voice vote. It now will be sent to the full House for a vote.

The legislation is co-sponsored by House Ways and Means Committee Chair Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX). It received strong praise from both Democrats and Republicans, who usually refer to the bill as SECURE Act 2.0. It is an add-on to the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in December 2019.

Representatives Neal and Brady introduced SECURE Act 2.0 to enable Americans to save more for retirement. The Center for Retirement Research at Boston College indicates that nearly half of American households may not have sufficient funds to maintain their standard of living during retirement.

SECURE Act 2.0 includes a reduced version of the Legacy IRA Act. Section 309 of the SECURE Act 2.0 permits a one-time election for a qualified charitable distribution (QCD) to be made to a charitable gift annuity (CGA), charitable remainder unitrust (CRUT) or charitable remainder annuity trust (CRAT), all split interest vehicles. The one-time election under Section 408(d)(8) would enable an IRA owner to make a distribution of up to $50,000 to a CGA, CRUT or CRAT.

A standard payment CRUT or CRAT would qualify if it is funded exclusively by a QCD. A qualifying gift annuity must also be funded exclusively by QCDs and make payments of at least 5% starting within the first year of funding.

The QCD must be made to a qualified charitable organization. The charitable remainder trust (CRT) or charitable gift annuity income interest must not be assignable. All payouts from a CRT or gift annuity funded with a QCD will be ordinary income.

SECURE Act 2.0 would also increase the $100,000 QCD limit under Section 408(d)(8) (in multiples of $1,000) after 2021 to account for inflation.

Editor’s Note: It is significant that the bill had strong bipartisan support. This will facilitate the move to the House floor, with an expected vote in June or July. If the House passes the bill, there could be a Senate vote in October or November. While the one-time QCD limit of $50,000 dollars is not likely to be used to fund CRTs, it will be attractive for many individuals who are interested in the fixed payments from a charitable gift annuity. While the distributions will be all ordinary income, this will be a popular charitable option for millions of American seniors.

Neal and Brady Support SECURE Act 2.0

Both Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) voiced strong support for SECURE Act 2.0.

Chairman Neal indicated that there is a “retirement crisis” in America that will worsen unless individuals are more diligent in planning for retirement. He highlighted the success of the passage of the SECURE Act in 2019. With that legislation, an estimated 600,000 or more new retirement accounts were created.

“But more work needs to be done,” continued Chairman Neal. “And that is why I am pleased that Ranking Member Brady and I have come together to develop H.R. 2954, the Securing a Strong Retirement Act of 2021, or SECURE Act 2.0. Building on the successes of the SECURE Act, H.R. 2954 will expand automatic enrollment in 401(k) plans by requiring 401(k), 403(b) and SIMPLE plans to automatically enroll participants in the plans upon becoming eligible, with the ability for employees to opt out of coverage.”

Chairman Neal expressed strong preference for this legislation to become law in 2021. He concluded, “Let’s not wait another decade to enact the important provisions in the SECURE Act 2.0. Today’s bill goes a long way in addressing this country’s retirement crisis. I urge all of my colleagues to support this much needed legislation.”

Chairman Brady was also effusive in his support. He noted that SECURE Act 2.0 would accomplish several goals. “It promotes retirement savings earlier by automatically enrolling employees in their company’s 401(k) plan. It allows employers to match their workers’ student loan repayments with contributions to their retirement plans. It encourages small businesses to set up retirement plans for their workers by fully offsetting the paperwork costs and providing a per-employee credit of up to $1,000 for employer matching contributions.”

Brady also supported passage of SECURE Act 2.0 in 2021. He concluded, “I look forward to working with you, Mr. Chairman, as we advance and refine this bill, the Securing a Strong Retirement Act, through the legislative process — in a bipartisan fashion — through the rest of this year.”

Applicable Federal Rate of 1.2% for May — Rev. Rul. 2021-8; 2021-18 IRB 1 (15 Apr 2021)

The IRS has announced the Applicable Federal Rate (AFR) for May of 2021. The AFR under Section 7520 for the month of May is 1.2%. The rates for April of 1.0% or March of 0.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.