Cares Act - Qualified Individual Section 2202

My client would like to take a distribution on his IRA per section 2202. The question is whether he is a qualified individual.

Per Section 2202, you are a qualified individual if:
-You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19

He was laid off in early January 2020 (before lockdown and mayhem). He's receiving Calif unemployment and the federal $600/week too.

I'm having trouble determining whether his layoff is considered an 'adverse financial consequence' for purposes of 2202. IRS has granted him the $600/week so doesn't it follow that he's also adversely affected for purposes of 2202 even though his layoff was prior to Covid?

Ask him to tell you, give him the criteria and ask which he meets

Seems like his facts and circumstances would be more than you need to know to initially assess, after he tells which criteria he meets and why, then you’re in a better position to answer

He was laid off, so that would be the part he's claiming to meet. Laid off due to Covid? That is the question.

Per ATAXPLAN articles, “Adverse financial consequences” are not defined. Someone who loses his entire family income as a result of a virus-triggered business closing has suffered substantial “adverse financial consequences.” But the statute does not require “substantial” consequences....any adverse financial consequences will do. Notice 2020-50 does not make any attempt to define “adverse financial consequences".
IRS Publication 974, Disaster Relief (Feb. 2018) provides the Treasury’s guidance, rules, and policies regarding these disaster
distributions that have occured in past years.

I am going to dove tail here. Does anyone know how the mechanics for self reporting works? I don't see a Covid early distribution exception in my software. Granted I can see that coming in an update.

IRS says:
Q14. How do plans and IRAs report coronavirus-related distributions?
A14. The payment of a coronavirus-related distribution to a qualified individual must be reported by the eligible retirement plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. This reporting is required even if the qualified individual repays the coronavirus-related distribution in the same year. The IRS expects to provide more information on how to report these distributions later this year. See generally section 3 of Notice 2005-92.

The 1099-R Instructions don't even mention CARES or Covid. I think. I did a word search but may have mucked that up. https://www.irs.gov/pub/irs-pdf/i1099r.pdf


Thanks for any guidance.

https://www.irs.gov/pub/irs-drop/n-20-50.pdf

A. Tax reporting on coronavirus-related distributions
An eligible retirement plan must report the payment of a coronavirus- related distribution to a qualified individual on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. This reporting is required even if the qualified individual recontributes the coronavirus-related distribution to the same eligible retirement plan in the same year. If a payor is treating the payment as a coronavirus-related distribution and no other appropriate code applies, the payor is permitted to use distribution code 2 (early distribution, exception applies) in box 7 of Form 1099-R. However, a payor also is permitted to use distribution code 1 (early distribution, no known exception) in box 7 of Form 1099-R.

I believe that you will have to file Form 8915-E to report a coronavirus-related distribution, and the instructions to Form 5329 state exception number 12 would be used.

Bringing this back up, I have heard more people saying that a stay-at-home order (like Florida and many other states) automatically qualifies taxpayers if they were in those states for any retirement distributions.

Does anyone agree/disagree?

Yes some people can’t work from hone or worked less so were short on income.

I see I ProSeries that on the bottom of the 1099R wksht that they are still waiting to update this form for these exceptions.

My simplest question I can come up with:

- Person, who is a hermit and never leaves his home, takes out $100K of his IRA. He doesn't repay in time. Does hermit's mere presence in a state who issued a stay-at-home order qualify him to now pay back the $100K to his IRA.