On August 24, 2016 the IRS issued Revenue Procedure 2016-47, changing the way IRA and solo 401k owners are able to complete late rollovers of retirement funds after the 60-day rollover window has lapsed. Following are some of the most common questions being asked.
How do I report on my Form 1040 a 60-day rollover using the new self-certification procedure?
You will report the transaction as a 60- day rollover, in the same fashion you would report any other 60-day rollover. No special reporting applies on your Form 1040 federal tax return. However, the IRS is planning to modify the instructions to Form 5498 to require that an IRA trustee or custodian, who accepts a late rollover with a self-certification, report that it was accepted after the deadline. The IRS will know which rollovers were late and, therefore, can apply a higher level of scrutiny.
Can the self-certification procedure be used for distributions from both company plans including solo 401k plans and IRAs?
Yes. The new procedures can be used by participants to roll over both distributions from company plans such as a solo 401k plan and IRAs.
Am I required to file the self-certification letter with the IRS?
No you are not required to file anything with the IRS when using the self-certification procedure. The letter will need to be provided to the IRA custodian or the solo 401k plan administrator. A copy should also be kept in the file in the even of an IRS audit.
Is there a fee for self-certification?
There is no fee that needs to be paid to the IRS. Previously, the only way to get such relief was through the costly (over $10,000) private letter ruling (PLR) process.
If I violated the once-per-year rollover rule (6-day rule). Will the new self-certification rules help me?
Unfortunately, no. Self-certification will not help with this mistake. The IRS cannot allow a client to self-certify a late rollover when a timely rollover would not have been allowed in the first place.
If I do not qualify for self-certification, is there any relief available?
Possibly. However, the Revenue Procedure’s list of acceptable “excuses” is fairly exhaustive and one has to think that there would be few times when a client would not meet the requirements for self-certification. The private letter ruling process is still available for 60-day rollover requests that do not meet the 11 reasons set up by IRS. The IRS fee for those ruling requests is $10,000. In addition, you would also have to pay a professional a fee to prepare your ruling request which could be another $10,000. It generally takes IRS 6 – 9 months to issue a decision on a ruling request.
Requests that will automatically be denied include those where a non-spouse beneficiary wants to complete a 60-day rollover and where an individual did more than one 60-day IRA-to-IRA rollover in a 12 month period. IRS does not have the authority to grant a waiver in either of those situations.
When are the self-certification procedures effective?
The self-certification relief has been available since the Revenue Procedure was published on August 24, 2016.
Will the IRS know that I used the self-certification process to complete a late 60-day rollover?
Eventually, but not at the present time. Under the current reporting process, there is no way for a custodian to alert the IRS that a particular rollover is late. It’s possible that we could see the change as early as 2017.
Can IRS disallow my self-certification?
Yes. Completing a late rollover using the self-certification process does not equal the waiver that the IRS could grant via a PLR. When a client is able to obtain a successful PLR request, the IRS has essentially “blessed” their transaction as OK. Any disputes with an IRS representative regarding the matter that later come up can be easily resolved by providing a copy of the successful PLR.
If, on the other hand, one uses the self-certification process to complete a late rollover, it’s possible that the IRS, upon examination of the client’s return, could decide that the client did not meet the requirements of Revenue Procedure 2016-47. Thus, the only sure way for one to complete a late rollover with a 100% guarantee of the IRS’ acceptance is to obtain a PLR. Given the substantial expense of a PLR, coupled with the small likelihood of an IRS overrule of a self-certified late rollover, it is hard to imagine many people opting for the PLR route.
Can you use the self-certification process when the IRA owner dies before completing a 60-day rollover?
This is a good and tough question. It is not directly addressed in the Rev. Proc. or in the 11 reasons provided in the self-certification letter. You could probably use the self-certification when the spouse is the sole beneficiary and is the executor of the estate. IRS has generally allowed this in private letter rulings requested by a spouse.
However, if the rollover is going to a new IRA established in the name of the decedent, IRS has said that the executor cannot name a beneficiary on the account. You may also have a hard time finding an IRA custodian who would be willing to open an IRA under these circumstances.
Is there a limit to the number of times that one can use the self-certification process?
There is no limit to the number of times one can utilize the self-certification process outlined in Revenue Procedure 2016-47 to complete a late 60-day rollover. However, the new IRS guidance does not change the once-per-year rollover rule. Thus, one cannot use the self-certification process to complete multiple late 60-day IRA-to-IRA rollovers or multiple late 60-day IRA-to-Solo401k plan rollovers that occurred within the same 365-day period.