IRS Provides Relief for 60-Day Rollover Failures

Starting August 24, 2016, the Internal Revenue Service (IRS) has enacted new procedures for taxpayers who miss the 60-day deadline for retirement account rollovers to get relief. Taxpayers who qualify can submit a self-certification letter to either the IRA custodian or plan administrator to get an extension of their deadline.

Previously, 60-day rollover mistakes could be remedied through Private Letter Rulings (PLRs). Unfortunately, the cost of PLRs was increased in 2016 to $10,000, and this fee doesn’t even include the professional fees a client would need to pay to file the ruling. The new procedures provide a simpler and free method to avoid the negative tax consequences of a failed rollover.

The IRS explains the new procedures in Revenue Procedure2016-17. In this procedure, the taxpayers apply for an extension of the 60-day deadline to avoid the penalties and/or taxes of a failed rollover.

To qualify for this new procedure, one of more than eleven possible circumstances must apply to the taxpayer. These include death or serious illness of a family member, incarceration, postal errors, and misplaced checks.

Revenue Procedure 2016-17 includes a sample letter that the taxpayer can use to provide written certification to the IRA trustee or plan administrator. Once filed, the individual must make the contribution to the plan or IRA.

This does not apply to people who have violated the once-year or any other rollover rule. 

Sometimes life events do get in the way of IRA rollovers. It is great news to hear that the IRS understands this and now provides methods for avoiding the penalties.