By:  Karen T. Syrylo, CPA

The Internal Revenue Service recently issued Revenue Ruling 2018-17  requiring that a holder that remits an unclaimed IRA account, including securities, to a state’s Unclaimed Property fund must withhold and remit federal income tax. The ruling has raised significant concerns among businesses and their advisors, precipitating an August 31, 2018 letter to the Internal Revenue Service’s and Treasury Department’s counsel’s offices by the Unclaimed Property Holders Coalition, and an urgent request for a meeting with the IRS and Treasury representatives.

The Revenue Ruling classifies the remittance of an IRA account’s securities to the state as a “distribution” for which income tax withholding and form 1099 reporting are required, beginning with remittances made on January 1, 2019.

The Coalition (comprised of institutions and advisors) writes that the ruling appears to presume that the holders of the accounts have authority to liquidate securities on behalf of the IRA investor/owner;  but the liquidating of the securities (in order to have cash with which to pay the withholding) without the authorization of the IRA’s owner would likely run afoul of securities laws, for example Financial Industry Regulatory Authority (“FINRA”) Rule 408(a), as well as Securities and Exchange Commission (“SEC”) Rule 17Ad-12.  (And of course, securing such authorization is not possible, because the owner can’t be located – which is why the account was remitted as unclaimed property in the first place!)

Altus Group will be monitoring the situation and will report on developments.