Airline Payment Amount Rollovers Inquiry

Submitted by Robert Meyer on Tue, 2016-02-23 22:09

This is in regards to IRS Announcement 2015-13: https://www.irs.gov/pub/irs-drop/a-15-13.pdf

My understanding is that this was amended as part of the Protecting Americans from Tax Hikes Act of 2015 with deadline extensions due to a “technical glitch” in the IRS announcement above. See page 129 ( Sec. 307) here: http://docs.house.gov/billsthisweek/20151214/121515.250_xml.pdf

Our client (former AA employee) received a letter from AA which indicates substantial Airline Payment amounts received in 2013 and 2014. These payments are now rollover eligible (with limitations) through 6/15/2016.

My question is, because client has already paid tax on the full amount of the payments (included in prior 2013 and 2014 W2 wages), might they be eligible to be rolled directly into a Roth IRA? If not, will they need to go back and amend the 2013 and 2014 returns in order to take advantage of the Traditional IRA rollover eligibility up to 90% of the payment amounts? Looks like they require a paper filed return with a negative line 21 adjustment to offset the taxable wages that would now be rolled over.

Interesting situation, new to me so any feedback is appreciated.

Thank you,

Robert



Submitted by Alan - IRA critic on Wed, 2016-02-24 04:37

  • Robert, while quite a quagmire, this release from Ascensus indicates that Announcement 2015-13 does not apply to Roth IRAs. Roth IRA rollovers must have been done within 180 days of receipt of the payment, and since the reporting glitches that resulted in the Announcement reflected only to rollovers to TIRAs, only those transfers received a time extension as a result of the Notice. In other words, it does not appear there is new extension to do what the client could have done within the 180 day payment window.  https://www.ascensus.com/CompanySite/Utility/News/index.htm?NewsID=1887
  • But if client now wants to roll 90% to a TIRA by 6/15/2016, in order to secure a tax refund for income taxes already paid or reported, he has that option and would then file 1040X returns with the negative line 21 entry as you indicated.
  • I think there is another question here. In a summary of the FAA Mod Act it stated that if a taxpayer had elected to roll the payment to a Roth IRA, and then recharacterized it to the TIRA, there would be a 5 year wait to do a reconversion back to Roth. But there was no such time limit to convert if the payments did not go into the Roth initially. So could this be yet another “back door” into a Roth via conversion for the client if that is what he wants at the end of the day?  That would entail a tax refund for prior years offset by a tax bill for the year he converts it.

Submitted by Robert Meyer on Wed, 2016-02-24 15:40

Thanks for the response – good information. I agree, does not sound like the rollover to a Roth is possible. However, I like the back-door possibility. At the end of the day, rolling 90% to the TIRA, amending 2013 & 2014 to secure the refund, and then converting to the Roth using the refunds to pay the tax would essentially be the same as rolling to the Roth now.-Robert

Submitted by PATRICK PRAZENICA on Wed, 2016-03-02 03:27

I too have a client who received a letter from AA regarding potential rollover of the Airline Payment amounts.  I will be amending this client’s 2013 and 2014 returns to take advantage of the rollover eligibility, however my client also received funds in 2015 for the “Merger Equity Grant” referenced in the letter (I assume we are talking about the same one – my client is a current AA employee – perhaps there were different letters for current and former employees).  The letter states “While a position exists that the Merger Equity Grant awarded pursuant to the 2013 Incentive Award Plan qualifies for rollover treatment, there is risk this position could be successfully challenged if your return is selected for audit by the IRS.”  I was wondering if anyone was familiar with this particular aspect of the Airline Payment Rollover and what level of risk is involved – my research thus far has not yielded any information on this specific topic.  Additionally, if my client should claim some amount of rollover in 2015 is the paper filing requirement still in effect?  I have not seen specific guidance from the IRS on this related to the filing of 2015 returns.  As above, any feedback is appreciated.  Thanks.  Patrick

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