When a distribution is made from an individual retirement account or from a tax-qualified plan, that distribution may be eligible for a rollover, either back into the same account, or to another such account. But, the rollover must be completed within 60 days of the date when the distribution occurs.
Until now, under Revenue Procedure 2003-16, a private letter ruling was needed to apply for relief from the 60-day rollover requirement. When the Internal Revenue Service grants relief, the rollover may be completed, even though late.
Effective Aug. 24, 2016, Rev. Proc. 2016-47 makes it possible to obtain relief without applying for a private letter ruling.
When Relief’s Available
Relief is available for those who failed to meet the 60-day rollover deadline because of any of 11 situations stated in the Rev. Proc. And, the relief is available even if the error is discovered in an IRS audit. However, relief isn’t available for a late IRA rollover contribution if the IRS has previously denied a rollover request. For example, the IRS may have denied such a request in a PLR or during an audit.
Provided that relief is otherwise available by complying with the new Rev. Proc., the rollover must be completed “as soon as practicable after the reason or reasons listed in
the [11 situations] no longer prevent the taxpayer from making the contribution.” A rollover completed within 30 days after there’s no impediment to making the contribution is presumed to meet the “as soon as practicable” requirement.
The 11 situations that the Rev. Proc. states can qualify for this new avenue are:
1. An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
2. The distribution was made in the form of a check, but, that check was misplaced and never cashed;
3. The distribution was deposited into an account that the taxpayer mistakenly thought was an eligible retirement plan and the funds remained in that account;
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 Internal Revenue Code Section 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.
Although other situations won’t qualify for the new form of relief, relief may still be available by submitting a PLR request.
Claiming any of the 11 situations may nevertheless require subjective judgment. For example, what qualifies as “severe damage” to a residence”? What constitutes “serious illness”? It may be a good idea to review PLRs issued to others in an effort to interpret those terms, keeping in mind that no one may rely on the PLR of another.
For purposes of preparing and making the submission, the Rev. Proc. provides a form, which is referred to as a “declaration.” It includes a statement that relief is needed and the taxpayer’s certification that the relief is requested for one of the 11 reasons. After that, a list of the 11 reasons appears with a space to check off which reason is being claimed. At the bottom, a signature block is provided.
A copy of the declaration must be given to the IRA trustee or the plan administrator who receives the rollover contribution.
The signature block includes representations that there hasn’t been a previous denial of relief, as well as confirmation of understanding that an audit without an express IRS grant of a waiver can incur income and excise taxes, interest and penalties. If the rollover contribution is made to an IRA, the taxpayer acknowledges that the IRA custodian will be required to report the contribution to the IRS. Lastly, the need to retain a copy of the signed certification with the taxpayer’s tax records is noted.