Tax Court Rules New SECURE 2.0 Statute of Limitations on Excess Contribution Penalty is not Retroactive
The Tax Court recently ruled that the new SECURE 2.0 statute of limitations (SOL) on the 6% excess IRA contribution penalty is not retroactive.
SECURE 2.0 Changes
SECURE 2.0 established a six-year SOL on the 6% excess IRA contribution penalty and a three-year SOL on penalties for missed required minimum distributions (RMDs).
Prior to SECURE 2.0, the SOL for both these penalties was not considered to start to run until Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, was filed. If Form 5329 was not filed, the IRS could have potentially assessed penalties at any time, even years into the future, and gone all the way back to the first year when any excess contribution or missed RMD was made.
In SECURE 2.0, Congress said the new SOL for both penalties was “effective upon enactment.” The “enactment” date of SECURE 2.0 was December 29, 2022. But the new law was not clear on whether the new SOL applied only for years on or after 2022 or also applied retroactively for years prior to 2022. The IRS has not issued any guidance on this.
New SOL Is NOT Retroactive
In Couturier v. Commissioner, No. 19714-16; 162 T.C. No. 4, (February 28, 2024) the Tax Court ruled that the SOL for the excess contribution penalty should NOT be applied retroactively. The case arose from a last-ditch appeal by Clair Couturier who had previously been found to have owed $8.4 million in excess contribution penalties after he attempted to roll over $26 million in plan funds he received in a buyout package.
This case did not involve the new three-year SOL for the missed RMD penalty. However, the effective date for that provision is the same as the effective date for the new SOL for the excess contribution penalty. So, it seems reasonable to assume the Tax Court would interpret the missed RMD penalty to work the same way – that is, it also is not retroactive.
Stay Tuned
This case has already been appealed multiple times, so it is possible that this is not the final word here. In the meantime, anyone thinking that they can let sleeping dogs lie, and not fix excess IRA contributions or missed RMDs from years prior to 2022, may want to reconsider. This Tax Court case is a warning that the new SECURE 2.0 SOL may not be enough to make those problems go away.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC
Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.