In Revenue Procedure 2016-47, which was released by the Internal Revenue Service on August 24, 2016, the IRS prescribes eleven circumstances in which taxpayers may qualify for automatic extension of the 60-day deadline for completing a rollover to an IRA or to an employer’s tax-qualified plan. The procedure described in the Revenue Procedure is effective starting August 24, 2016.
Generally, tax-free rollovers must be completed by depositing the funds at issue within 60 days after the taxpayer receives the amount that is being rolled over. The only exceptions have been those cases where the taxpayer requests, and the IRS issues, a private letter ruling holding that the deadline was missed for reasons beyond the control of the taxpayer, and where the taxpayer played no part in the delay, or where the taxpayer fairly relied on erroneous advice received from a financial institution involved in the transaction. Under the new Revenue Ruling, taxpayers would no longer be required to obtain a ruling – or have to be unlucky enough to have relied on erroneous advice – but could “self-certify” the reason(s) for having missed the 60-day deadline, and unless there is actual knowledge to the contrary, the recipient of the rollover may rely on that self-certification to treat the transaction as a valid, timely rollover.
The taxpayer would not have the final say for all purposes, however. In the event of an IRS audit, the IRS still may decide that the taxpayer’s reason was not valid and that the rollover was therefore late. But, if that were to occur, the IRA custodian or the qualified-plan administrator that received the rollover would not be penalized for having accepted and relied upon the taxpayer’s certification.
In order for a taxpayer to be eligible to self-certify, the three following conditions must be satisfied:
- The IRS cannot have previously denied a request for waiver of the 60-day deadline with respect to a rollover of all or part of the same distribution.
- The payment effecting the rollover must be completed “as soon as practicable” once the stated reason for the delay no longer exists, or no longer prevents the rollover. For this purpose, 30 days after the reason ceases to prevent the rollover is considered to be “as soon as practicable.”
- The deadline must have been missed because one or more of the following circumstances prevented the rollover from being completed on time:
(a) an error was committed by the financial institution making the distribution, or by the institution receiving the rollover contribution (or by both);
(b) a postal error occurred;
(c) a distribution check was lost or misplaced, and was never negotiated by the taxpayer;
(d) the distribution was deposited into, and remained in, an account that the taxpayer mistakenly believed was eligible to receive the rollover;
(e) death of a family member;
(f) serious illness of the taxpayer or a family member;
(g) the taxpayer was incarcerated;
(h) the taxpayer incurred serious damage to his or her principal residence;
(i) restrictions that were imposed by a foreign country prevented completing the rollover;
(j) the distribution in question was made due to a tax levy under Section 6331 of the Internal Revenue Code, and the amount levied upon was subsequently returned to the taxpayer; or
(k) the bank or other organization that made the distribution that is being rolled over failed to timely provide information required by the intended recipient of the rollover (the IRA or employer’s plan) in order to complete the rollover, even though the taxpayer made all reasonable efforts to have the information provided.
When a certification is made, it must be in writing. The Revenue Procedure contains a model certification letter, and provides that the model may be used verbatim, or else a letter that is “substantially similar in all material respects” may be used. A copy of the certification should be retained by the taxpayer in the event of an IRS audit or other inquiry.
The Revenue Procedure can be found at https://www.irs.gov/pub/irs-drop/rp-16-47.pdf.
If you have any questions regarding this Alert, the Revenue Procedure, or the new certification requirement, please feel free to contact the author of this Alert, Jeffrey Ashendorf, at jashendorf@fordharrison.com, or any member of FordHarrison's Employee Benefits Practice Group. You may also contact the FordHarrison attorney with whom you usually work.