Game of telephone turns ‘dung’ into ‘well done’
There is an old joke about those who can’t seem to escape the past. No doubt told by a northerner — and my northern roots stop me from using the term “Yankee” — it asks “How many Virginians does it take to change a lightbulb?”
The answer — three. One to change the bulb and two to reminisce about how good the old bulb was.
This joke sometimes uses the phrase “talk about,” but anyone from the East Coast knows that Virginians instead reminisce.
Unable myself to escape the past I reminisced about a piece I had seen in a tax publication perhaps 20 years ago about how the tax laws are written. I wanted to steal that item because I thought it so well captured how we end up with the tax laws that we have.
I wondered how I would get permission to use the item. And how would I even find it? So I entered a phrase I recalled during my reminiscing into a Google search and, to my surprise, found that the item had been used dozens of times to describe a variety of different acts by authority figures.
Unable to give credit to the person who first captured the essence of the tax legislative process, I instead present the words and my admiration for the insight that accompanies them.
Harry Truman is credited with saying “the only thing new in the world is the history you do not know.” When I complain about recently enacted tax law, perhaps I just need to better know the history of tax legislation. And with that, now …
In the beginning was the Act, then the regulations and interpretations. And the Act was without form and the interpretations were void. And darkness was upon the faces of the taxpayers. And they spoke unto a member of the Revenue Service saying, “It is a crock of dung (substituted term folks) and it stinketh.”
And the member of the Revenue Service went to his manager saying, “It is a crock of excrement, and none may abide its odor.”
And the manager went to the Commissioner of Internal Revenue saying, “It is a container of excrement, and is very strong, such that all are stunned by it.”
And the Commissioner went before a member of Congress saying “it is a vessel of fertilizer, and none may stand before its strength.”
And the member of Congress went before the Joint Committee on Taxation saying “it contains that which aids plant growth and it is very strong.”
And the Joint Committee went before the House of Representatives and the Senate saying, “it promotes growth and it is powerful.”
And the House of Representatives and the Senate went before the President saying “This powerful new law will promote employment and reduce the deficit.”
And the President looked upon the law and saw that it was good. And so it was written.
Q: I took two IRA required minimum distributions (RMDs) in 2020 — one in March and one in April — before the new law said that no RMDs need be taken in 2020. Can I now return the funds within 60 days and avoid any 2020 tax liability?
A: Yes, you can but only for one of the two distributions. Because of the new law there are no RMDs in 2020 so your two distributions will be treated the same as any other IRA distribution.
Distributions returned within 60 days are not taxable. However, the law provides that you can only do one 60-day rollover within a single 12-month period. This means that you can only return one of the two distributions. Any change to this rule must come from Congress.
An earlier column about the recent CARES legislation warned that a 2020 distribution that may, under the new law, be returned within three years may need to be carefully timed if there was another 60-day rollover in the recent past.
The new three-year rollover is actually not a “rollover.” The new law says if the 2020 funds are returned within three years it will be a deemed trustee-to-trustee transfer that is not subject to the one rollover per year rule. But this rule applies only to defined COVID-19 related distributions.