Calls Grow for IRS to Address Secure 2.0 Error Threatening Catch-Up Contributions

“Unfortunately, it’s likely to be very difficult to get a technical corrections bill passed through Congress, despite the obvious need to fix these errors,” Brad Campbell, an attorney with Faegre Drinker and former head of the Labor Department’s Employee Benefits Security Administration, told ThinkAdvisor in January.

“The House is going to very cautious in sending any tax-related bill to the Senate, as revenue measures must originate in the House,” he said. “An opportunity to attach a corrections bill might come with the next ‘must pass’ issue, but the big picture politics associated with these debates make outcomes very uncertain. Just as passage of the [Secure 2.0 Act] came down to the wire, a corrections bill is fraught with difficulty.”

Precedent Exists for an Easy Temporary Fix

In his group’s new letter, NAGDCA Executive Director Matt Petersen submits that the Treasury and IRS should issue guidance to the public now, following the approach it used more than 15 years ago in Notice 2007-99. That piece of guidance was issued with respect to the interpretation of Internal Revenue Code section 402(1) as added by the Pension Protection Act of 2006.

In response to a similar obvious drafting error, Notice 2007-99 declared that the agency would operate “with the expectation of a future legislative correction.” This allowed stakeholders to move forward according to the legislature’s stated intent, rather than according to the requirements of demonstrably erroneous legislative text.

“This approach is reasonable, as the relevant lawmakers and their staff are aware of this technical error, but they may have difficulty finding a timely legislative vehicle to immediately advance such a correction,” Petersen writes. “Enough legislative history exists for Treasury to properly issue guidance stating that it will follow Congressional intent for the provision, rather than the erroneous final text.”

Petersen also suggests the IRS and Treasury could rely on the absurdity principle of statutory construction to arrive at the conclusion that Congress did not intend to pass legislation that is clearly ineffective.

(Image: Adobe Stock)