When Did Congress Intend the New §4973 Statute of Limitations to Take Effect?

If a taxpayer contributes more than the allowed amount to an individual retirement account (IRA), §4973 imposes a 6 percent excise tax on those excess contributions. Before the SECURE 2.0 Act, a taxpayer’s failure to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, caused the assessment statute of limitations for the §4973 excise tax to remain open indefinitely.ⁱ

Fast forward to the SECURE 2.0 Act of 2022: Congress added §6501(l)(4)(A) to the Internal Revenue Code (IRC) to provide that the filing of Form 1040 starts the assessment statute of limitation on the §4973 excise tax, while new §6501(l)(4)(C) provides that the §4973 excise tax
assessment statute of limitations is six years when a taxpayer files Form 1040 without Form 5329.ⁱⁱ The ordinary three-year assessment statute of limitations applies if the taxpayer files Form 1040 and Form 5329.

In Couturier, the Tax Court was asked when the new limitations period provision took effect.ⁱⁱⁱ The SECURE 2.0 Act stated that this provision “shall take effect on the date of enactment of this Act.”^iv The date of enactment was December 29, 2022.

Mr. Couturier timely filed his 2004 through 2008 Forms 1040 but did not include Form 5329 for any of those years. On June 10, 2016, the Internal Revenue Service (IRS) issued a notice of deficiency determining §4973 excise tax deficiencies for those five years. Under existing case law, there was no assessment statute of limitations at the time because he never filed Form 5329 with those returns.

The first phase of the trial was held in September 2023, over seven years after the notice of deficiency was issued, and the taxpayer later filed a motion for partial summary judgment with respect to those years. The taxpayer’s position was that the IRS was time-barred under new §6501(l)(4) because the notice of deficiency was issued more than six years after the returns were filed.

In a reviewed decision, the Tax Court denied the petitioner’s motion and held that the new assessment statute of limitations provision applied only to returns filed on or after December 29, 2022:

In sum, we conclude that the most natural reading of the Act’s effective-date provision is that section 6501(l)(4) applies purely prospectively, i.e., with respect to returns filed on or after the date of enactment. We find no evidence anywhere in the Act or its legislative history that Congress intended section 6501(l)(4) to apply to pending cases, to prior tax years, or to tax returns filed for prior tax years. “Congressional enactments . . . will not be construed to have retroactive effect unless their language requires this result.” Chenault, 37 F.3d at 538 (quoting Landgraf, 511 U.S. at 272). The text of section 313(b) does not remotely suggest any such requirement. And even if section 313(b) were thought ambiguous, the “presumption against retroactivity” would attach because section 6501(l)(4) would operate to alter the IRS’s substantive right to assess tax by imposing upon it a six-year period of limitations that did not previously exist.

Four Tax Court judges concurred with the result but disagreed with the Court’s opinion, while two dissented.

In the concurrence, Judge Toro believed that the existing statutory framework resolved the motion, and the majority did not need to interpret the effective date:

Given the posture of this case (Mr. Couturier is the one moving for partial summary judgment), we must construe factual materials and inferences drawn from them in the light most favorable to the Commissioner. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). We must therefore assume that, as of June 10, 2016, the facts here justified the application of section 6501(c)(3) (as the Commissioner contends). Thus, for purposes of our analysis we must assume that, as of that date, the Commissioner would have been authorized (but for section 6213) to assess the deficiencies determined in the Notice. Mr. Couturier timely filed a Petition in our Court seeking a re-determination of the deficiencies the Commissioner determined, thus triggering section 6503. Under section 6503(a)(1), the running of the limitations period was “suspended” on June 10, 2016, and remains suspended until our decision in this case becomes final “and for 60 days thereafter.” Accordingly, during this 60-day period, the Commissioner may permissibly assess the relevant tax.

The concurrence goes further to opine that the most natural reading of the §6501(l)(4) effective date was for the new provision to apply to “any assessment made (or, in the deficiency context, any notice of deficiency issued) on or after December 29, 2022…”

The dissenting opinion sided with Mr. Couturier and strictly applied the effective date:

Section 6501(l)(4) became effective on December 29, 2022. Because petitioner filed only Forms 1040, U.S. Individual Income Tax Return, section 6501(a) mandates that the Commissioner must have assessed the section 4973 liability, or sent a notice of deficiency, prior to the expiration of the six-year period. See Blak Invs. v. Commissioner, 133 T.C. 431, 435 (2009). The Commissioner failed to do so. Accordingly, petitioner’s Motion for Partial Summary Judgment should be granted.

It is important to note that the SECURE 2.0 Act also applied the §6501(l)(4)(A) assessment statute of limitations provision to the §4974 excise tax for failure to take a required minimum distribution (RMD). It is possible that its effective date may be further litigated in later cases since the Tax Court had differing views on its application.