United States

IRS releases self-certification procedure for late IRA rollovers

TAX ALERT  | 

In Rev. Proc. 2016-47, the IRS introduced a self-certification procedure for individuals to qualify for a waiver from the typical 60-day window that a taxpayer has to complete an eligible rollover from a qualified retirement plan or IRA to another plan. The new procedure also allows the IRS to grant waivers during the examination process. This new guidance is welcome relief for taxpayers who must currently request an expensive private letter ruling when the window is missed for circumstances beyond their control.

Typically, taxpayers have 60 days from receiving a distribution from a qualified retirement plan or IRA to roll the funds into another qualifying plan or IRA to avoid paying tax on the distribution. If the 60-day window is missed, the distribution is taxable and potentially subject to early distribution penalties, depending upon the taxpayer’s age. These consequences apply even if the funds are contributed into an eligible plan in the same tax year. Receiving a waiver from the 60-day window means a taxpayer is allowed to treat the distribution as nontaxable in certain circumstances when the rollover occurs outside of the allowed window.

Under the new procedure, a taxpayer can certify to a plan administrator or IRA trustee who receives the rolled over funds outside of the 60-day window that the taxpayer meets the requirements for a waiver. The taxpayer must have missed the 60-day window for one of the reasons specified in the procedure (e.g., financial institution failure, misplaced check, illness, death and others), must not have previously been denied a waiver from the IRS for the distribution, and must make the rollover as soon as practicable. If the requirements are met, the taxpayer must supply the self-certification statement to the institution receiving the rolled over contribution and keep a copy in their file for audit protection. Following this process allows the plan administrator or IRA trustee and the taxpayer to report the distribution and contribution as a rollover, rather than a taxable distribution.

In many cases, taxpayers should consider using a direct rollover from an employer plan or trustee-to-trustee transfer from an IRA to avoid any chance for missing the 60-day rollover window and to avoid withholding on the distribution. In addition, taxpayers should note that self-certification is not an automatic waiver of the 60-day window from the IRS; the issue may still be adjusted upon an IRS audit if the IRS finds incorrect information or disagrees with the facts supplied in the self-certification statement. Nonetheless, if taxpayers use a 60-day rollover rather than a direct transfer, the 60-day window is missed and the requirements of the revenue procedure are met, taxpayers should use the self-certification process to avoid receiving notices for income and excise taxes as well as potential penalties and interest related to a failed rollover.

The new procedure is effective Aug. 24, 2016. A sample self-certification letter is provided in Rev. Proc. 2016-47.

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