March 14, 1989
TO: PENSION MEMBERS NO. 15-89
RE: IRS NOTICE CONCERNING CORRECTIVE DISTRIBUTIONS UNDER TAMRA
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As you know, the Technical and Miscellaneous Revenue Act of
1988 (TAMRA) retroactively amended section 402(g)(2) of the
Internal Revenue Code to provide that the income attributable to
a corrective distribution of an excess deferral is treated as
earned and received in the year of distribution rather than in
the year of deferral. (See Institute Memorandum to Board of
Governors No. 69-88 and Pension Members No. 44-88, dated November
1, 1988.) TAMRA also retroactively amended section 4979(f)(2) of
the Code with respect to excess contributions and excess
aggregate contributions by providing that corrective
distributions of de minimis amounts (i.e., less than $100) are
includible in gross income in the year distributed rather than in
the year for which the contribution was made. Each of these
changes is effective for taxable years after 1986.
Attached is a copy of IRS Notice 89-32, which describes the
reporting requirements for corrective distributions under the
TAMRA changes. This notice modifies Notices 87-77 and 88-33,
which summarized the reporting requirements for 1988 corrective
distributions of excess amounts includible in gross income in
1987. (See Institute Memoranda to Pension Members Nos. 66-87 and
16-88, dated December 17, 1987 and March 12, 1988, respectively.)
Notice 89-32 provides that plan administrators and payors
that complied with Notices 87-77 and 88-33 as originally issued
with respect to corrective distributions for 1987 and 1988 excess
deferrals, excess contributions and excess aggregate
contributions will be considered to have satisfied the reporting
requirements, provided that the corrective distributions were
timely made on or before April 17, 1989. Moreover, the income on
an excess deferral distributed before this date may be reported
by the recipient, at his or her option, as income for either the
year of distribution or the year of deferral, regardless of
whether the plan administrator or payor has reported it as income
for a different year. Similarly, the recipient of a corrective
distribution of a de minimis excess contribution or excess
aggregate contribution on or before April 17, 1989 may report the
distribution in gross income for either the year of distribution
or the year for which the contribution was made. The pre-TAMRA
rules may not be used, however, for excess deferrals, excess
contributions and excess aggregate contributions distributed
after April 17, 1989.
The notice also discusses in detail plan administrator and
payor reporting of corrective distributions on Forms W-2P and
1099-R, including additional distribution codes, and taxpayer
reporting on Form 1040. Separate rules are set forth with
respect to recharacterized excess contributions.
We will keep you informed of further developments.
Kathy D. Ireland
Assistant General Counsel
Attachment