Treasury Provides Relief for Late 60-Day Rollovers

The Internal Revenue Code allows qualified plan participants and IRA owners to withdraw assets from a plan or IRA and contribute them to another (or the same) plan or IRA without being taxed on the distribution, if the rollover occurs within 60 days. If the deposit occurs after 60 days, the taxpayer can seek a Private Letter Ruling that avoids taxation if the taxpayer has good cause. Unfortunately, such a route is expensive, requiring a $10,000 user fee.

In Rev.Proc. 2016 – 47, Treasury is now allowing taxpayers that make a late rollover to avoid tax without having to seek a Private Letter Ruling if the lateness is attributable to certain listed circumstances. If a taxpayer qualifies, he or she sends a certification letter to the recipient plan or IRA administrator or custodian. The taxpayer is then off the hook for being taxed, unless the IRS audits and finds that the taxpayer really did not meet the criteria for avoiding taxation.

To qualify to use the procedure, the taxpayer must not have previously been denied a waiver by the IRS for the particular distribution at issue. The taxpayer must also complete the rollover as soon as practicable once the reason for not rolling over timely has ended (with a 30 day safe harbor applying to this requirement).

Here are the 11 reasons for a late rollover that will allow use of the procedure:

(a) an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates; (b) the distribution, having been made in the form of a check, was misplaced and never cashed; (c) the distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan; (d) the taxpayer’s principal residence was 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) the taxpayer was incarcerated; (h) restrictions were imposed by a foreign country; (i) a postal error occurred; (j) the distribution was made on account of a levy under § 6331 and the proceeds of the levy have been returned to the taxpayer; or (k) the party making the distribution to which the roll over 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