Self-Certification Procedure Streamlines Relief For Late Rollovers

news-clip-art-391673The IRS has unveiled a new self-certification procedure for taxpayers who inadvertently miss the 60-day time limit for certain retirement plan distribution rollovers. The IRS described a number of mitigating circumstances.

 

Take away. This new guidance will ease the administrative and financial burdens on taxpayers. Taxpayers can now file a letter with the plan administrator accepting the rollover, stating that the taxpayer missed the 60-day rollover deadline for an IRS-approved reason. Besides providing relief to taxpayers, the new guidance also provides security for plan administrators, who will now be able to rely on a taxpayer’s certification letter in accepting a rollover contribution.

Background

Code Sec. 408(d)(3)(I) authorizes the IRS to waive the 60-day requirement where the facts and circumstances of a case indicate that failure to waive the requirement would be inequitable. The IRS has the authority to grant a waiver of the 60-day rule in situations involving equity, good conscience, or for situations that were beyond the control of the individual. In exercise of that authority, Rev. Proc. 2003-16 enumerates factors that the IRS will consider when making this determination. These include errors by a financial institution; death, disability, hospitalization, incarceration, restrictions imposed by a foreign nation, or postal error; the use of the amount distributed; and the time elapsed since the distribution occurred. To obtain a waiver (other than an automatic waiver), a taxpayer must file a request for a ruling under the procedures provided for ruling requests regarding qualified plans in Rev. Proc. 2016-4.

Over the past year alone, the IRS has approved more than 40 60-day waiver requests in published letter rulings. The new procedure will eliminate the ongoing need for most of these requests.

Rev. Proc. 2016-47

To qualify for the relief in Rev. Proc. 2016-47, the IRS explained that taxpayers must have missed the 60-day deadline because of their inability to complete a rollover due to one or more of the following reasons:

  • An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
  • The distribution, having been made in the form of a check, was misplaced and never cashed;
  • The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;
  • The taxpayer’s principal residence was severely damaged;
  • A member of the taxpayer’s family died;
  • The taxpayer or a member of the taxpayer’s family was seriously ill;
  • The taxpayer was incarcerated;
  • Restrictions were imposed by a foreign country;
  • A postal error occurred;
  • The distribution was made on account of a levy under Code Sec. 6331 and the proceeds of the levy have been returned to the taxpayer; or
  • The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.

Additional requirements

The IRS must not have previously denied a waiver request with respect to a rollover of all or part of the distribution to which the contribution relates. The contribution must be made as soon as practicable after resolution of the circumstances that prevented the taxpayer from making the contribution. This requirement is deemed to be satisfied if the contribution is made within 30 days after the reason or reasons no longer prevent the taxpayer from making the contribution, the IRS explained.

Rev. Proc. 2016-47 is effective August 24, 2016. Additionally, Rev. Proc. 2003-16 is modified by providing that the IRS may grant a waiver during an examination of the taxpayer’s income tax return.

This entry was posted in Blog, Featured on Homepage, Tax Notes, Tax Reporting and tagged , . Bookmark the permalink.