New IRS Procedure Lets Taxpayers Self-Certify Eligibility for Waiver of 60-Day Rollover Requirement

(Parker Tax Publishing August 2016)

The IRS has provided a self-certification procedure that allows taxpayers to claim eligibility for a waiver of the 60-day rollover requirement under Code Sections 402(c)(3) and 408(d)(3). A plan administrator or an IRA trustee can rely on such certification in accepting and reporting receipt of a rollover contribution. The new procedure is effective as of August 24, 2016. Rev. Proc. 2016-47.

Background

Code Secs. 402(c)(3) and 408(d)(3) allow a taxpayer to roll over, tax free, a distribution from a qualified plan or IRA into an eligible retirement plan. Generally, the individual must make the rollover contribution by the 60th day after the day the individual receives the distribution. Similar rules apply to Code Sec. 403(a) annuity plans, Code Sec. 403(b) tax sheltered annuities, and Code Sec. 457 eligible governmental plans.

The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond the individual's reasonable control. Rev. Proc. 2003-16 provides for automatic approval for a waiver of the 60-day rollover requirement in certain circumstances in which a rollover is not made timely due to an error on the part of a financial institution. Taxpayers who do not qualify for an automatic waiver can apply for a waiver by submitting a request for a private letter ruling under the procedures outlined in Rev. Proc. 2016-4. If a taxpayer requests a waiver and the IRS grants it, the taxpayer typically has 60 days from the issuance of the letter ruling to complete the rollover.

Without a waiver, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment and the taxpayer must treat them as a taxable distribution from the plan or IRA.

New Self-Certification Procedure

In Rev. Proc. 2016-47, the IRS has introduced a procedure for taxpayers to make a written certification to a plan administrator or an IRA trustee receiving a contribution that the contribution is eligible for a waiver of the 60-day rollover requirement. Taxpayers can make this certification by using the model letter in the appendix to the revenue procedure on a word-for-word basis or by using a letter that is substantially similar in all material respects.

Practice Tip: Taxpayers are not required to submit a copy of the certification to the IRS following the rollover or with their returns, but are advised to retain a copy to be made available to the IRS if requested on audit.

Rev. Proc. 2016-47 states that self-certification is not a waiver by the IRS of the 60-day rollover requirement, but provides that a taxpayer may report the contribution as a valid rollover. The IRS, in the course of an examination, can still consider whether a taxpayer's contribution meets the requirements for a waiver. For example, the IRS might determine that the requirements for a waiver were not met because of a material misstatement in the self-certification, or that the reason the taxpayer claimed for missing the 60-day deadline did not actually prevent him or her from timely completing the rollover.

For purposes of accepting and reporting a rollover contribution into a plan or IRA, a plan administrator or IRA trustee can rely on a taxpayer's self-certification in determining whether the taxpayer has satisfied the conditions for a waiver of the 60-day rollover requirement.

Caution: The IRS stated that it intends to modify the instructions to Form 5498, IRA Contribution Information, to require an IRA trustee that accepts a rollover contribution after the 60-day deadline to report that the contribution was accepted after the 60-day deadline. Because the IRS can challenge a taxpayer's treatment of the self-certified rollover during an audit, requesting an IRS waiver of the rollover through a PLR may still make sense, depending on the taxpayer's situation.

Conditions for Making a Self-Certification

In order to make a self-certification, Rev. Proc. 2016-47 requires the taxpayer to have missed the 60-day deadline because of his or her inability to complete a rollover due to one or more of the following reasons:

(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 Code Sec. 6331 and 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.

Rev. Proc. 2016-47 also requires that the contribution be made to the plan or IRA as soon as possible once the reason or reasons described above no longer prevent the taxpayer from making the contribution. This requirement is satisfied if the contribution is made within 30 days after the taxpayer is able to do so. In addition, the IRS must not have previously denied a taxpayer's waiver request with respect to a rollover of all or part of the distribution to which the contribution relates.

Effective Date

Rev. Proc. 2016-47 is effective on August 24, 2016.

For a discussion on rollovers of distributions from an IRA account, see Parker Tax ¶134,540.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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