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IRA Overcontribution Excise Tax Update

By Janet Hagy, CPA-Austin

The recent tax court case, Couturier v. Commissioner (T.C. Memo, 2022-69), is a timely reminder that excise tax can be retroactively imposed on otherwise closed years. In this case, the taxpayer was determined to have significantly overcontributed to his IRA in 2004. In 2016, the IRS imposed excise tax, penalties and interest on the 2004 overcontribution. The taxpayer tried to argue that the three- and six-year statute of limitations period had expired. The court ruled that, “This excise tax continues to apply to future tax years, until such time as the original excess contribution is distributed to the taxpayer and included in income, under Sec. 4973(b)(2).

This case is an extreme example of the problem of overcontribution to an IRA, HSA, Coverdell Education Savings or MSA, and the excise taxes that can be assessed. But it also highlights that the IRS’ scrutiny of related prior-year transactions in a future period can result in unfortunate consequences. To start the statute of limitations period, taxpayers should be advised to remove excess contributions and earnings on such excess as soon as possible, and to report any excise tax incurred.

Tax Court in Brief | Couturier v. Commissioner | Taxation of Excess Contributions from IRA - Freeman Law

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