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IRS Eases Process To Fix IRA 60 Day Late Rollovers



Under prior IRS rules, a rollover on day 61 was incorrect and had to be self-corrected or an expensive time consuming private letter ruling process had to be followed by the taxpayer to obtain relief from the IRS. In either case, the taxpayer was looking at extreme financial and negative emotional consequences.

Rev Proc 2016-47: Self-Certification Of Late Rollover Contribution With IRS Model Letter

Under the new Rev Proc 2016-47, instead of being required to request a private letter ruling to receive a hardship waiver for a late 60-day IRA rollover , individuals will be able to “self-certify” to their financial institution that the rollover they’re making complies with the rollover requirements, even if it doesn’t otherwise meet the 60-day rollover period. Notably, though, if the taxpayer has already requested relief from the IRS for a rollover and been denied, these new self-certification provisions cannot be used to obtain relief.

In order to be eligible to self-certify that a late rollover is still valid, the taxpayer must have failed to meet the 60-day rollover deadline in the first place for one of 11 specific reasons:

  1. An error was committed by the financial institution receiving the rollover contribution or making the distribution to which the rollover 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 as a levy to collect prior taxes owed, but the proceeds of the levy have been returned to the taxpayer; or
  11. 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.

Furthermore, in order to qualify, the individual must still actually complete the rollover “as soon as practicable” after the reasons limiting the rollover are no longer present (e.g., after you recover from being sick, once the lost check is re-issued, etc.). As a safe harbor, any rollover contribution that occurs within 30 days is presumed to have been done as soon as practicable.

The model letter is provided to your financial advisor or bank for their files and not the IRS. Your tax preparer will need a copy to treat the IRA distribution as a rollover. The IRS might send a tax notice a year after you file your tax return requesting proof of rollover. The response to this letter containing a model self-certification should satisfy the IRS.

This additional self-certification tool should help taxpayers who intended to rollover their IRA’s but did not do so in 60 days but fit one of the eleven criteria mentioned above.

Have questions? Contact Randy Tarpey.

 

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