Friday, August 26, 2016

IRS Help For Taxpayers Who Fail To Follow IRA and Retirement Plan Rollover 60-Day Rule

The Internal Revenue Service has provided a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for rollovers into another retirement plan or individual retirement arrangement (IRA).

In Revenue Procedure 2016-47, the IRS explained how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. In addition, the revenue procedure includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver.

Normally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. In most cases, taxpayers who fail to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS.

A taxpayer who missed the time limit will now ordinarily qualify for a waiver if one or more of 11 circumstances, listed in the revenue procedure, apply to them.  To Qualify:

(1) No prior denial by the IRS.  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.

(2) Reason for missing 60-day deadline.  The taxpayer must have missed the 60-
day deadline because of the taxpayer’s inability to complete a rollover due to one or more of the following reasons:

  1. an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;

  2. the distribution, having been made in the form of a check, was misplaced and
    never cashed; 

  3. the distribution was deposited into and remained in an account that the
    taxpayer mistakenly thought was an eligible retirement plan;

  4. the taxpayer’s principal residence was severely damaged;

  5. a member of the taxpayer’s family died

  6. the taxpayer or a member of the taxpayer’s family was seriously ill;

  7. the taxpayer was incarcerated;

  8. restrictions were imposed by a foreign country;

  9. a postal error occurred; 

  10. the distribution was made on account of a levy under § 6331 and the proceeds
    of the levy have been returned to the taxpayer; or

  11. the party making the distribution to which the roll
    over 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.

(3) Contribution as soon as practicable; 30-day safe harbor.  The contribution
must be made to the plan or IRA as soon as practicable after the reason or reasons listed in the preceding paragraph no longer prevent 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. 

Ordinarily, the IRS and plan administrators and trustees will honor a taxpayer’s truthful self-certification that they qualify for a waiver under these circumstances. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination.

Other requirements, along with a copy of a sample self-certification letter, can be found in the revenue procedure.

The IRS encourages eligible taxpayers wishing to transfer retirement plan or IRA distributions to another retirement plan or IRA to consider requesting that the administrator or trustee make a direct trustee-to-trustee transfer, rather than doing a rollover. Doing so can avoid some of the delays and restrictions that often arise during the rollover process. For more information about rollovers and transfers, check out the Can You Move Retirement Plan Assets? section in Publication 590-A or the Rollovers of Retirement Plan and IRA Distributions  page on

For help with your legal needs contact a business, tax, and health care law attorney at the offices of AttorneyBritt.

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