This article explains the “self-certification” waiver of the 60 day roll over requirement based on the provisions of the recently released Rev. Proc. 2016-47. The IRS required certification foe a waiver is also included.
When a taxpayer withdraws funds or receives a distribution from a tax deferred retirement plan (IRA, 401k, 403a, 403b, and 457 government plans), the amount is taxable as ordinary income and subject to an additional 10% penalty if the taxpayer is younger than 59 ½. To avoid being taxed on the distribution, the funds must be rolled over to the same or other similar plan (e.g. a 403b plan or 457 plan to an IRA). within 60 days of receiving the funds. A direct trustee to trustee rollover within 60 days is never taxable. If a taxpayer is not able to meet the 60 day requirement, they can request additional time if the Secretary of the Treasury determines “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement” [Sects. 402(c)(3)B and 408(d)(3)9l)].
Additional time may also be granted due to:
(1) service in a combat zone, areas affected by terrorism or military action, or living in a presidentially declared disaster area [IRC Sects 7508,7508A, 301.7508-1 , Rev. Proc. 2007-34 and 2007-56 (IRB 388)].
(2) a letter ruling issued by the IRS
(3) an error on the part of the financial institution. In this instance, an automatic approval of the waiver is granted [Sect. 3.03 of Rev. Proc. 2003-16].
(4) matters under jurisdiction of the Commissioner, Tax Exempt and Government entities Division [ Rev. Proc. 2016-41 and 2016-4 under IRB 142].
Self -Certification Eligibility and Procedures
Written Self -Certification
A taxpayer may make a written certification to a plan administrator or IRA trustee that a contribution satisfies the conditions in Sect. 3.02 of Rev Proc 2016-47. The certification waives the 60 day rollover requirement and grants up to an additional 30 days (“safe harbor time period”) after the reasons no longer prevent the taxpayer from making the contribution. Taxpayers may make the certification by using the model letter (see end of article) or in a letter that is substantially the same as the model letter. The taxpayer and tax advisor should keep a copy of the letter to be available if the taxpayer is audited.
Conditions for self-certification [Sect. 3.02-Rev Proc 2016-47]
(1) No prior denial of a waiver by the IRS for all or part of a rollover distribution.
(2) Reason for missing the 60 day deadline due to one or more of the following reasons:
(a) an error committed by the financial institution that received the contribution or made the distribution to which the contribution relates.
(b) If the check for the distribution made was lost, misplaced, or never cashed.
(c) the distribution was deposited into and remains in an account that the taxpayer mistakenly thought was an eligible retirement plan.
(d) taxpayer’s principal residence was destroyed or severely damaged.
(e) a member of the taxpayer’s family died.
(f) the taxpayer or a member of the taxpayer’s family was seriously ill.
(g) taxpayer was incarcerated.
(h) restrictions imposed by a foreign country.
(i) a postal error occurred.
(j) distribution made on account of a levy under Sect 6331 and the proceeds of the levy have been returned to the taxpayer.
(k) 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.
(3) Making the contribution as soon as possible within the 30 day safe harbor after the date the reasons no longer prevent the taxpayer from making the contribution.
The IRS will modify the instructions to Form 5498 (corrected IRA Contribution) to indicate that an IRA trustee that accepts. a rollover contribution after the 60 day deadline report that the contribution was accepted after the 60 day rollover period.
Effect of self-certification on the plan administrator or IRA trustee.
The plan administrator or IRA trustee may rely on the taxpayer’s self-certification but can NOT rely on the self-certification for other purposes or if the plan administrator or IRA trustee has actual knowledge that it is contrary to the self-certification.
Effect of self-certification on the taxpayer
The self-certification is not an explicit waiver by the IRS of the 60 day rollover requirement but may report the contributions as a valid rollover unless the IRS later informs the taxpayer to the contrary. This could occur in an audit when the Service considers whether the taxpayer’s contribution meets the requirements for a waiver (e.g., a material misstatement in the self-certification or the reasons stated did not prevent the taxpayer from meeting the 60 day rollover period). If this happens, the taxpayer may be required to include the distribution in income, be subject to the 10% penalty if under age 59 ½ or the penalty for failing to pay the correct amount of tax under Sect 6651.
In addition to automatic waivers of the 60 day rollover period , the IRS during an exam, has the discretion under Rev. Proc 2003-16 to determine that the taxpayer qualifies for
the waiver of the 60 day rollover period.
The effective date of Rev. Proc 2016-47 is August 24, 2016. and modifies Rev. Proc. 2003-41 and 2003-16 (IRB 359) by providing that the IRS may grant a waiver of the 60 day rollover period during an audit of the taxpayer’s tax return.
Model Letter contained in Appendix of Rev Proc 2016-47
Certification for Late Rollover Contribution
City, State, ZIP Code
Plan Administrator/Financial Institution Address
City, State, ZIP Code
Dear Sir or Madam:
Pursuant to Internal Revenue Service Revenue Procedure 2016-47, I certify that my contribution of $ [ENTER AMOUNT 1] missed the 60-day rollover deadline for the reason(s) listed below under Reasons for Late Contribution. I am making this contribution as soon as practicable after the reason or reasons listed below no longer prevent me from making the contribution. I understand that this certification concerns only the 60-day requirement for a rollover and that, to complete the rollover, I must comply with all other tax law requirements for a valid rollover and with your rollover procedures.
Pursuant to Revenue Procedure 2016-47, unless you have actual knowledge to the contrary, you may rely on this certification to show that I have satisfied the conditions for a waiver of the 60-day rollover requirement for the amount identified above. You may not rely on this certification in determining whether the contribution satisfies other requirements for a valid rollover.
Reasons for Late Contribution
I intended to make the rollover within 60 days after receiving the distribution but was unable to do so for the following reason(s) (check all that apply):
___An error was committed by the financial institution making the distribution or receiving the contribution.
___The distribution was in the form of a check and the check was misplaced and never cashed.
___The distribution was deposited into and remained in an account that I mistakenly thought was a retirement plan or IRA
___My principal residence was severely damaged.
___One of my family members died.
___I or one of my family members was seriously ill.
___I was incarcerated.
___Restrictions were imposed by a foreign country.
___A postal error occurred.
___The distribution was made on account of an IRS levy and the proceeds of the levy have been returned to me.
___The party making the distribution delayed providing information that the receiving plan or IRA required to complete the rollover despite my reasonable efforts to obtain information.
I declare that the representations made in this document are true and that the IRS has not previously denied a request for a waiver of the 60-day rollover requirement with respect to a rollover of all or part of the distribution to which this contribution relates. I understand that in the event I am audited and the IRS does not grant a waiver for this contribution, I may be subject to income and excise taxes, interest, and penalties. If the contribution is made to an IRA, I understand you will be required to report the contribution to the IRS. I also understand that I should retain a copy of this signed certification with my tax records.
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