On August 24, 2016, the IRS issued a new revenue procedure that has the potential to save taxpayers a lot of stress and money. In general, when a taxpayer takes a distribution from an IRA or other qualified plan, that distribution must be included in the taxpayer’s gross income unless the funds are redeposited into a new IRA or qualified plan within 60 days of the distribution. In addition, if the taxpayer is under the age of 59 1/2, the distribution may be subject to early withdrawal penalties. Clearly, missing the rollover window has significant tax consequences. However, in Revenue Procedure 2016-47 the IRS provides new guidance concerning waivers of the 60-day rollover requirement, and affords significant relief for taxpayers who inadvertently missed the 60-day rollover window.
Under the new guidance, a taxpayer who missed the 60-day rollover window may follow a self-certification procedure, after which the taxpayer can report the contribution as a valid rollover. Plan administrators may safely rely on these self-certifications unless the administrator has actual knowledge contrary to the self-certification. This means that instead of having to report the entire distribution as ordinary income, and possibly incurring an early distribution penalty, the amount may be rolled into a new plan, tax-free. The IRS has even provided a sample self-certification letter.
The self-certification procedure requires the taxpayer to provide a written certification to the plan administrator receiving the rollover funds, stating that the rollover is eligible for a waiver of the 60-day requirement. To qualify for this self-certification waiver process, the IRS must not have previously denied a waiver request for the rollover, and the reason for missing the 60 day window must be one of the following reasons:
(a) An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
(b) The distribution, having been made in the form of a check, was misplaced and never cashed;
(c) The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;
(d) The taxpayer’s principal residence was severely damaged;
(e) A member of the taxpayer’s family died;
(f) The taxpayer or a member of the taxpayer’s family was seriously ill;
(g) The taxpayer was incarcerated;
(h) Restrictions were imposed by a foreign country;
(i) A postal error occurred;
(j) The distribution was made on account of a levy under § 6331 and the proceeds of the levy have been returned to the taxpayer; or
(k) 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.
In addition, the contribution to the receiving plan must be made as soon as practicable after the reason(s) relied on by the taxpayer no longer prevent the taxpayer from making the contribution. The revenue procedure provides a 30-day safe harbor period from when the reason(s) is no longer an impediment to the contribution. It is important to note that the self-certification procedure is not an IRS waiver of the 60-day rollover requirement and the certification is subject to verification on audit, but the taxpayer is allowed to report the contribution as a valid rollover unless later informed otherwise by the IRS.
View the full revenue procedure here. For more information on the IRS’s new revenue procedure, please contact Tim White at firstname.lastname@example.org.