As retirement plan professionals know, certain distributions from plans and IRAs to taxpayers can be rolled over to another plan or IRA within 60 days. Of course, sometimes 60 days is just not enough and the IRS recognizes that, having permitted a seemingly innumerable number of private letter rulings granting extensions. These often occur where a financial advisor gave bad advice or made some kind of mistake or where some tragedy worthy of a blues or country song (or worse) befell the taxpayer that made it impossible to complete the rollover in 60 days.
The IRS has had a small cottage industry the last decade or so of granting private letter rulings extending the 60-day period for these rollovers. But now, they’ve decided to let plans and IRAs just take the taxpayer’s word for it.
Under a new revenue procedure, taxpayers can now self-certify as to the reason that they need more time. Now, taxpayers can’t just certify for any reason. They have to have missed the 60-day period because of one or more of the following reasons:
- An error on the part of the financial institution receiving the rollover or making the distribution
- The distribution was made in the form of a check and the check was misplaced and never cashed (“I put the check where I knew I’d remember it. It was right next to my keys.”)
- The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was a retirement plan or IRA (“but this email said that it was an eligible plan and the money would also help the deposed prince of Nigeria…”)
- The taxpayer’s primary residence was severely damaged (but not a vacation home, it seems)
- A member of the taxpayer’s family died
- The taxpayer or a member of his or her family was seriously ill
- The taxpayer was incarcerated
- Restrictions were imposed by a foreign country (does not include mandates from the deposed prince of Nigeria)
- A postal error occurred (“I told them to address it to Santa Claus at the North Pole…”)
- The distribution was made on account of a tax levy, but the proceeds of the levy were returned
- The financial institution making the distribution delayed providing information that the receiving plan or IRA needed to complete the rollover, despite the taxpayer’s reasonable efforts to obtain the information (e.g., phone calls, emails, bad reviews on Yelp maybe?)
There are other conditions too. The taxpayer has to make the contribution as soon as practicable once the identified impediment is no longer holding up the process. A contribution within 30 days after the issue is resolved is treated as meeting this requirement.
The good news for plans and IRA custodians is that they can rely on the certification unless they have actual knowledge that the excuse is not real. So they don’t have to have the same lie detector skills as parents or teachers.
Of course, the IRS also reserves the right to verify this on audit. We are left to wonder how some of these will be verified. For example, how does the IRS plan to prove that the taxpayer didn’t misplace a check? Nonetheless, if the IRS finds that the self-certification was inappropriate, taxpayers will be subject to additional taxes and penalties.
It’s worth noting that some “explanations” still don’t fly, even under this broad relief. Ignorance of the law is still no excuse (“I didn’t know I only had 60 days.”). Also, an inability to count to 60 properly is not going to be enough to get someone off the hook.
The IRS plans to modify the Form 5498 (which reports IRA contributions) to report any contributions received after the 60-day deadline, which will help let the IRS know whom to audit.
For employers, this ruling may result in some questions from their third party administrators. Most rollovers to qualified plans are likely made in direct trustee-to-trustee transfers, which are not a part of this ruling. Because of that, the questions are likely to be few, but there could be some. For example, if an employee comes forward with a self-certification that does not clearly fit into the list, but is close, the TPA may request that the plan administrator (which may be the employer or someone there) make a decision about whether the certification is sufficient. Practically, however, certifications outside this specific list should not be accepted.
The IRS has provided other resources on this issue as well which are available at the links below:
– IRS Webpage – Accepting Late Rollover Contributions