The IRS has issued proposed regulations addressing the federally declared disaster provisions of Section 7508A(d) of the Internal Revenue Code (Code) (26 U.S.C. § 7508A(d); 86 Fed. Reg. 2607 (Jan. 13, 2021)). The proposed regulations would clarify how Treasury will administer the 60-day automatic postponement of certain tax-related deadlines regarding federally declared disasters.

As background, the Code permits Treasury to postpone certain tax-related deadlines, including those relating to employee benefit plans, after a federally declared disaster or terrorist or military action (26 U.S.C. § 7508A). A set-aside period of up to one year is permitted for benefit plans (26 U.S.C. § 7508A(b)).

Subsection (d) was added to Code Section 7508A by 2019 year-end government funding legislation that also included the SECURE Act (Pub. L. No. 116-94 (Dec. 20, 2019)). Subsection (d) requires Treasury to automatically postpone federal tax deadlines for 60 days for federally declared disasters occurring on or after December 21, 2019. In addition, Subsection (d) applies to the deadlines for making contributions to a qualified retirement plan, plan distributions, recharacterizing plan contributions, and plan rollovers.

The proposed regulations address how Treasury would administer the new mandatory 60-day postponement provision under Subsection (d) alongside a pre-existing rule under Code Section 7508A(a) ("Subsection (a)") that gives Treasury discretionary authority to postpone deadlines in response to federally declared disasters. (This includes certain actions related to employee benefit plans, listed by cross-reference to Revenue Ruling 2018-58.) Subsection (d) provides certain taxpayers a mandatory 60-day postponement period of time that is disregarded for compliance purposes in the same manner as the period specified under a discretionary Subsection (a) postponement period.

The proposed regulations would address two problems that Treasury encountered in administering the mandatory 60-day postponement period under Subsection (d). First, it was not clear to Treasury from the text of Subsection (d) which time-sensitive acts are to be postponed following a disaster. Second, it was unclear how the mandatory 60-day period is calculated if a disaster declaration does not include an initial "incident date."

To address these concerns, the proposed regulations:

If a federal disaster declaration does not specify an incident date, there would not be a 60-day mandatory postponement period under Subsection (d).

In addition, if a postponement period is less than 60 days, then:

Addressing differences in terminology between the Code and the Stafford Act (under which federal disasters are declared), the proposed regulations would amend a regulation defining "federally declared disaster" to clarify that the term includes major disasters and emergencies—both as declared under the Stafford Act (26 C.F.R. § 1.165-11(b)(1); see Practice Note, COVID-19 Compliance for Health and Welfare Plans: National Emergency Declaration Due to COVID-19).

In issuing the proposed regulations, Treasury indicated that Code Section 7508A disaster relief provided in response to the COVID-19 pandemic illustrated some of the issues addressed in the proposed regulations. For example, because the President's March 13 emergency declaration for COVID-19 did not specify an incident date, there was no mandatory 60-day postponement period under Subsection (d). Rather, the only postponement period for time-sensitive acts under Code Section 7508A was issued under Subsection (a) (and another subsection specific to employee benefit plans (26 U.S.C. § 7508A(b))). Postponement-related guidance included:

The proposed regulations would apply to disasters declared on or after December 21, 2019. Public comments on the proposed regulations are due on March 15, 2021.

Despite the mandatory 60-day postponement provision, Treasury makes clear in its proposed regulations that it would continue to exercise a good deal of discretion in the disaster context—particularly as to defining the scope of time-sensitive acts to be postponed for individuals (and in some cases, the government itself). As evidenced last year in the agencies' response to COVID-19, these postponements can affect a wide range of benefit plan provisions (see Legal Update, Agencies Extend Benefit Plan Compliance Deadlines Due to COVID-19).