IRS Allows Waivers on 60-Day Rollover Deadline

The tax code allows the 60-day rollover requirement to be waived when “the failure to waive such requirement would be against equity or good conscience.” A list of the reasons the IRS would consider a waiver claim acceptable.

The Internal Revenue Service (IRS) requires rollovers of retirement accounts—including individual retirement accounts and qualified workplace plans—be completed within 60 days. Failure to meet this deadline can result in the assets being taxed at ordinary income rates and an additional 10% penalty being assessed. Certain exceptions exist, including the account owner having reached the age of 59½.

The tax code allows the 60-day rollover requirement to be waived when “the failure to waive such requirement would be against equity or good conscience.” The IRS clarified the reasons it would consider a waiver claim acceptable:

An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
The distribution, having been made in the form of a check, was misplaced and never cashed;
The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;
The taxpayer’s principal residence was severely damaged;
A member of the taxpayer’s family died;
The taxpayer or a member of the taxpayer’s family was seriously ill;
The taxpayer was incarcerated;
Restrictions were imposed by a foreign country;
A postal error occurred;
The distribution was made on account of a levy under Section 6331 of the Internal Revenue Code and the proceeds of the levy have been returned to the taxpayer; or
The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.

Within 30 days after being able to make the contribution, taxpayers must submit written certification to a plan administrator or IRA trustee to take advantage of the waiver. The model letter included in IRS Rev. Proc. 2016-47 can be used on a word-for-word basis or “a letter that is substantially similar in all material respects” to the model letter. In doing so, the contribution can be reported as a valid rollover unless otherwise notified by the IRS. Those seeking to claim a waiver must not have been previously denied for waiver, however.

Source: “Waiver of 60-Day Rollover Requirement,” Internal Revenue Service Rev. Proc. 2016-47.