The Internal Revenue Service (IRS) recently released Revenue Procedure 2016-47, which spells out some important new guidelines regarding rollovers into IRAs or other tax-qualified plans, specifically exceptions to the 60-day deadline for completing the rollover.
In general, tax-free rollovers from a retirement account mandate that the funds must be deposited in a qualified account within 60 days after the person receives them. Previously, the only exceptions granted required a person to request, directly from the IRS, a letter indicating the deadline was missed for reasons outside the person’s control and granting an extension.
The new ruling allows taxpayers to “self-certify” the reason(s) for missing the deadline and rely on that self-certification in order to continue the transaction as a valid, timely rollover. However, the taxpayer doesn’t necessarily have the final say, as–in the event of an audit–the IRS may still decide that the taxpayer’s reason was not valid and that the rollover was indeed late. (Although, if that were to happen, the IRA custodian or plan administrator who accepted the rollover would not be penalized for relying on the taxpayer’s self-certification.)
The automatic extension is available for any one or more of eleven circumstances. In order to qualify, all three of the following conditions must be met:
- 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.
All certifications must be made in writing. The Revenue Procedure includes a model certification letter that may be used verbatim. The taxpayer should keep a copy of the certification in case an audit or other inquiry is required. The new ruling went into effect as of August 24, 2016.