IRS Issues Additional
Procedure For Waiver of
60-Day Rollover Requirement
and Additional Self-
Certification Procedure
The IRS issued Revenue Procedure
2016-47 on August 24, 2016. It modifies
Revenue Procedure 2003-16. The IRS
now in the course of a examining a taxpayer’s
individual tax return may determine
that the person qualifies for a waiver
of the 60-day rollover requirement.
The IRS has created a third waiver
method. The new waiver method is effective
on August 24, 2016. The first waiver
method set forth in Revenue Procedure
2003-16 requires the taxpayer to file an
application requesting a waiver of the
60-day rule and the IRS must grant the
waiver. The second waiver method
authorizes an automatic waiver of the
60-day rule if four requirements are met.
Why this new IRS procedure? In January
of 2016 the IRS changed the filing
fees that a taxpayer must pay when submitting
his or her waiver application. In
2015, the filing fee was $500 if the purported
rollover was less than $50,000,
$1,500 if the rollover amount was less
than $100,000 but equal to or more than
$50,000 and $3,000 if the rollover
amount was $100,000 or more.
The IRS increased the fee to $10,000
for all such waiver applications. Apparently
the IRS concluded that it no longer
could afford to assign the personnel it
had assigned to process these waiverrequests. Presumably, many taxpayers
and tax professionals have expressed
their dissatisfaction to the IRS. The
$10,000 filing fee means many taxpayers
are no longer able to have the IRS
process their application and receive a
concrete ruling that they were or were
not entitled to a waiver of the 60-day
rule. The application process provided a
taxpayer with tax certainty.
In Revenue Procedure 2016-47 the IRS
authorizes a self-certification procedure
that a taxpayer may use to request the
waiver of the 60-day requirement rather
than using the application procedure.
The IRS tentatively grants the waiver
upon the making of the self-certification
and the taxpayer is permitted to prepare
his or her tax return to reflect that he or
she made a complying rollover so the
distribution amount is not required to be
included in his or her taxable income.
However, the IRS retains the right to
examine the individual’s tax return for
such year (i.e. audit) and determine if the
requirements for a waiver of the 60-day
rule were or were not met. If the IRS
determines the individual was not entitled
to a waiver of the 60-day rule, the
individual will have to include such distribution
in his or her income and will
have an excess IRA contribution situation
needing to be corrected. The IRS explanation
gives a limited discussion of the
adverse consequences. If the IRS does
not grant the waiver then the person may
be subject to income and excise taxes,
interest and penalties. One of the penalties which might apply would be the 25% tax for understating
one’s income.
This self-certification procedure applies to distributions
from any type of IRA and also from a 401(k) plan
or other qualified plan and certain 403(b) and 457
plans.
The IRS has stated that it will be modifying the Form
5498 so that an IRA custodian which accepts a rollover
contribution pursuant to this self-certification procedure
after the 60-day deadline will complete such person’s
Form 5498 to report that the rollover contribution
was accepted after the 60-day deadline. The IRS will
then be able to examine the tax returns of these taxpayers
and the purported rollovers.
How does this self-certification procedure work?
The IRA owner will furnish the IRA custodian/trustee
with a written certification meeting the following
requirements. The IRA owner may use the IRS’ model
letter set forth in the appendix of Revenue Procedure
2016-47 on a word-for-word basis or by using a form or
letter that is substantially similar in all material respects.
The requirements:
-
The IRS must not have previously denied a waiver
with respect to a rollover of all or part of the distribution
involved in the late rollover.
- The IRA owner must make his or her rollover contribution
as soon as practicable once the reason(s) for
missing the 60-day deadline no longer apply. This
requirement is deemed satisfied if the rollover contribution
is made within 30 days after the reason or reasons
no longer prevent the IRA owner from making the
rollover contribution.
- The taxpayer must have missed the 60-day deadline
for one or more of the following reasons:
• 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 you mistakenly thought was a
retirement plan or IRA.
• Your principal residence was severely damaged.
• One of your family members died.
• You or one of your family members were seriously
ill.
• You were 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 you.
• 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 the information.
A person whose reason for missing the 60-day
requirement is not included in the list of reasons is
unable to use this self-certification procedure.
The IRA custodian is authorized to rely on the IRA
owner’s self-certification for purposes of accepting the
rollover and reporting it unless it has actual knowledge
contrary to the self-certification.
The IRS has created this self-certification method
because it had to have some alternative procedure to
allow taxpayers to seek a waiver of the 60-day rule as
discussed in Revenue Procedure 2003-16 as the
increased filing fee meant most taxpayers no longer
would be using the application process.
This new procedure will help some taxpayers, but it
would not have been needed if the IRS would not have
imposed the $10,000 filing fee. One can hope the IRS
will see reason and will reduce the fees for 2017. Most
likely the IRS will not. Although the 11 reasons the IRS
lists as warranting the waiver of the 60-day rule are certainly
welcomed by taxpayers, there are certainly other
reasons for which the IRS should grant relief.
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