Industry Insights

New Self-Certification Procedure for Late Retirement Plan Rollovers

September 2016
Author:  Brandon Baum

Brandon Baum

Associate

Tax

1201 Walnut Street, Suite 1700
Kansas City, MO 64106-2246

Kansas City
816.221.6300

The IRS recently released Revenue Procedure 2016-47, Waiver of 60-Day Rollover Requirement, establishing a new self-certification procedure for qualified retirement plan ndistribution recipients who miss the 60-day requirement to roll the distribution over to an eligible retirement plan on a tax-free basis. Eligible retirement plans include traditional and Roth individual retirement arrangements (IRA), individual retirement annuities, qualified pensions, profit-sharing and stock bonus plans—Internal Revenue Code Section 403(a) annuities, §457 plans and §403(b) annuities.

60-Day Requirement

In general, distributions from a qualified retirement plan that aren’t made from nondeductible contributions are taxable as ordinary income in the year received (and potentially subject to a 10 percent early-distribution tax if received before age 59½, with exceptions). Distributions from a qualified retirement plan paid directly to a recipient must be deposited into another qualified retirement plan within 60 days to be excluded from income. The 60-day requirement starts the date the distribution is received and ends the date the amount is rolled over to an eligible retirement plan. If all or a portion of the distribution isn’t rolled over, the recipient may be required to include the amount in income for the tax year (and pay the 10 percent early distribution tax).

The New Procedure

Prior to the guidance, taxpayers could generally only obtain a waiver for missing the 60-day requirement by obtaining a private letter ruling from the IRS, which is both costly and time-consuming. The new self-certification procedure, which was effective upon the August 24, 2016, release, provides eligible taxpayers relief from missing the 60-day rollover requirement, if one or more of these 11 mitigating circumstances are met:

  1. An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution 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 on account of a levy under §6331 and the proceeds of the levy have been returned to the taxpayer
  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

In addition to meeting one or more of the above-listed reasons for missing the 60-day deadline, the IRS must not have previously denied a waiver request with respect to a rollover of all or part of the distribution to which the contribution relates, and the contribution must be made to the qualified retirement plan as soon as practicable after the reason or reasons no longer prevent the taxpayer from making the contribution. The procedure also allows the IRS to grant a waiver to the 60-day requirement during an examination of a taxpayer’s return.

The guidance provides sample self-certification language (or substantially similar language) that should be provided to a trustee or plan administrator. The revenue procedure allows the trustee or plan administrator to rely on the taxpayer’s self-certification.

Contact your BKD advisor to learn more about how this new revenue procedure may affect your tax situation.

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