Q. I read that the IRS changed their mind about the 60 day rollover rule you wrote about a few weeks ago; are you going to print a retraction?
A. No, a retraction would be used for a statement I’ve made that was untrue or incorrect and what I wrote about the new 60 day rule for rollovers is correct. As of Jan. 1, 2015, a new rule applies to 60 day rollovers. In a tax court case, Bobrow v Commissioner the tax court decided that the one year IRA rollover rule applies in aggregate for all IRAs. To prevent abuse, IRC Section 408(d)(3)(B) applies a limitation that the 60 day rollover rule can only be applied once in a one year period. This rule states that only one IRA to IRA rollover can be done per year from all IRAs held by an individual, including SEPs, SIMPLE IRAs and Roth IRAs. One year is measured as 365 days from the date of the distribution.
These rules do not apply to direct trustee to trustee transfers, rollovers from other types of plans to IRAs, rollovers from IRAs back to plans or Roth conversions.
I’m guessing that you are referring to the recently released Revenue Procedure 2016-47 which is certainly worth writing about so, thanks for your question. On Aug. 24, 2016, the IRS provided an alternative to the private letter ruling (PLR) requirement to eliminate penalties and taxes on late 60-day IRA rollovers. This is great news because the cost of requesting a PLR concerning IRA-related issues has skyrocketed since Feb. 1, 2016. Before that date the IRS fees ranged from $500 to $4,000. Now the increased IRS fee to request a PLR concerning retirement related issues is $10,000. Additional costs to prepare the PLR could easily be $10,000. After all, if the IRS is getting $10,000 what makes you think the attorney or tax professional preparing the PLR wouldn’t think they should get the same fee? PRLs are used to request that the IRS sanction or forgive an action you are planning or have taken that may or may not be a violation of the tax code.
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You can now submit a self-certification claiming eligibility for a waiver of penalties if you make a mistake and don’t make a timely 60-day rollover instead of paying the fee for a PLR. You must meet three conditions to submit a self-certification. These are: 1) no prior denial has been made for the waiver, 2) one of 11 reasons for the late rollover must be met, and 3) the money must be deposited in an IRA account as soon as the reason no longer prevents making the contribution.
The 11 reasons are: 1) Your financial institution made an error, 2) you misplaced your rollover check and it was never cashed, 3) your distribution was deposited into the wrong account and you thought it was a retirement account, 4) your principal residence was severely damaged, 5) a family member died, 6) you or a family member was seriously ill, 7) you were 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 section 6331 and the proceeds of the levy have been returned to the taxpayer, or 11) you tried to get information but the distributing institution didn’t provide it to the receiving plan or IRA.
Visit http://benefitslink.com/src/irs/rp-16-47.pdf for more information including a template letter for a certification for a late rollover contribution.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624