IRS Addresses Withholding for IRA Payments Made to State Unclaimed Property Funds

The IRS released Revenue Ruling 2018-17 in late May 2018 addressing withholding and reporting requirements for the payment of an IRA owner’s interest to a state unclaimed property fund (an action often referred to as “escheatment”).

Revenue Ruling 2018-17 states that payments made in this manner are treated as includable in gross income, and therefore are designated as distributions subject to the federal income tax withholding rules for IRAs. The revenue ruling also states that the distributing trustee must report these payments on the applicable year’s Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., identifying the IRA owner as the recipient.

For payments made before the earlier of January 1, 2019, or the date it becomes reasonably practicable to comply with the requirements, a person will not be treated as failing to comply with the withholding and reporting requirements described in the revenue ruling.

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