IRS 60 day rollover relief

Submitted by Alan - IRA critic on Thu, 2016-08-25 00:32

The IRS has issued Rev Procedure 2016-47 which provides taxpayers with a self certification procedure under which a rollover can be completed after 60 days and the plan (IRA or QRP) custodian will accept the rollover.

https://www.irs.gov/pub/irs-drop/rp-16-47.pdf

This will spare both taxpayers and the IRS from the costs of private letter ruling requests to allow a late rollover.



Submitted by Jose Morales on Thu, 2016-08-25 17:18

This is going to make everyone’s life easier.

Submitted by Alan - IRA critic on Thu, 2016-08-25 17:53

  • It is always interesting to try and project how changes like this will play out. Enforcement of the 60 day deadline in most individual rollover situations will still lie with the IRA custodian since the IRS ordinarily will not know either the date of distributions or the date of the rollover contribution. 1099R and 5498 reporting only indicates the calendar year of distributions and contributions. However, the proposed amended 5498 will report to the IRS that the custodian accepted a late rollover according to the Rev Procedure, so the IRS will now know of some of the cases where the rollover was done late.
  • That said, I doubt that many IRA custodians do more than simply ask the IRA owner if the rollover contribution is within 60 days. If a custodian holds the IRA account from which the distribution was taken, then they know when the 60 day period ends and should not be accepting such a rollover without the new certification. At this point the one rollover per 12 month limit could also come into play since if an IRA owner claims that the rollover contribution came from a different custodian’s IRA account and is within 60 days, then the rollover of a distribution taken from the current custodian’s IRA would not be eligible for rollover until the 12 months have passed. Note that the certification form late rollover justifications do NOT include waiting for the 12 month one rollover time limit to expire before completing a rollover. Incidentally, the IRS does NOT have the authority to waive the one rollover limit.
  • The IRS does receive SOME info regarding the one rollover rule. If they receive a 1099R from two different IRA accounts and both distributions are reported as non conversion rollovers, then the IRS receives a red flag that more than one distribution in a calendar year was rolled over. However, if the rollover contribution is done in the following year, the 5498 form showing that rollover will be a year later than the 1099R, making matching more difficult.
  • Bottom line, major enforcement gaps for both the 60 day and one rollover per 12 month time limits will continue despite this relief in situations where the IRS would likely have approved a PLR request anyway.

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