On Monday, August 24, 2016, it became a lot easier for taxpayers and plan administrators to deal with the all-too-common missed 60-day IRA rollover window.
In IRS Rev. Proc. 2016-47, IRS streamlined and simplified the waiver process for the 60-day rollover rule, eliminating the need in most cases for a costly ($10,000) and burdensome private letter ruling.
Under IRC §§ 402(c)(3) and 408(d)(3), distributions from a qualified IRA can be rolled-over, tax free, to another qualified retirement plan, as long as that roll-over occurs no more than 60 days following the receipt of the distribution. The law provides, however, that “the Secretary may waive the 60-day rollover requirement 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.”
Historically, such a waiver could only be obtained by requesting a private letter ruling from the IRS. The new procedure eliminates this requirement and instead allows a taxpayer to self-certify that he or she meets the requirements for a hardship waiver. Acceptable “excuses” include:
- 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 the taxpayer mistakenly thought was a retirement plan or IRA.
- The taxpayer’s principal residence was severely damaged.
- One of the taxpayer’s family members died.
- The taxpayer or one of his or her family members was seriously ill.
- The taxpayer 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 the taxpayer.
- The party making the distribution delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information
The taxpayer is not eligible for self-certification if a waiver request has already been denied by IRS. The new procedure includes a sample certification letter that can be used by the taxpayer to certify that he or she meets the requirements for a waiver of the 60-day deadline. The procedure provides that a plan administrator with no knowledge to the contrary can rely on the certification to show that the waiver conditions have been met.
It is important to note that this new procedure does not guarantee that a taxpayer who completes the self-certification process is eligible for the waiver. If he or she is audited, the IRS can still deny the waiver and tax the distribution. However, financial institutions can rely on the self-certification.
IRS has provided a helpful Q & A regarding this new procedure.