IRA Rollover Problems? Is the IRS seeking a Penalty? New Rules May Provide Tax Relief

Today, a ever-increasing share of responsibility for retirement planning and retirement savings is placed on the individual rather than pension plan administrators and other professionals. Reasons behind this shift include business’s desire to reduce costs, a do-it-yourself national ethos, and the rise of investment vehicles like the 401(k). While many taxpayers successfully navigate the often complex rules that govern IRAs and other retirement accounts, it is not outside the realm of possibility to make serious tax mistakes regarding these retirement accounts and disbursements you may receive.

If you have received an IRA rollover disbursement and failed to reinvest that money in a qualifying account in a timely manner, you may be subject to significant penalties. Working with careful tax lawyers can help taxpayers avoid a situation of this type. However, if you fear that you have already made an error, Ted Kleinman of U.S. Tax Help may be able to utilize new IRS rules to mitigate the tax consequences of the this mistake. To schedule a consultation, call Ted at (541) 923-0903 or online today.

What Happens If I Fail to Deposit an IRA Rollover Within 60 Days?

When it comes to distributions from an IRA or IRA rollovers, the IRS applies what is known as the 60-day Rule. Under the 60-day Rule, a taxpayer is afforded 60 days to redeposit or reinvest the account in a qualifying account. If the taxpayer fails to redeposit the funds within this timeframe, significant penalties can apply.

After 60 days elapses without appropriate action, the IRS assumes that you have had use of the money. This determination means that income tax becomes due on the disbursed funds. For some taxpayers, this means they will incur a significant and unexpected tax obligation. Further exacerbating the situation for many taxpayers is the fact that for individuals who have not yet achieved the age of at least 59 and one-half years, an additional penalty provision of ten-percent of the IRA rollover will apply. All in all, this is a difficult situation for any taxpayer to face.

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New IRS Rule Can Eliminate or Mitigate IRA Rollover Penalties

Recently, the IRS announced Revenue Procedure 2016-47. This revenue procedure seems to signal a new willingness at the IRS to work with taxpayers who simply made retirement savings errors or who faced hardships that made compliance with the 60-day rule impracticable. Under the revenue procedure, the IRS announced 11 specific situations in which a taxpayer can petition for relief from IRA penalties.

For example, the revenue procedure sets forth the scenario where the bank, investment company, or financial institution makes an error in receiving the contribution that leads to a penalty. Under these circumstances, a taxpayer should be able to petition for penalty relief. Additional scenarios where relief from penalties may be available includes:

  • A serious illness in the family or a death of a family member prevented the funds from being re-deposited.
  • The distribution was paid by check but the check was never deposited.
  • The mail carrier or courier made a delivery error.
  • The distribution was mistakenly believed to come from an IRA but, in fact, it did not.
  • The destruction of the taxpayer’s principle residence prevented the individual from taking appropriate action.

While relief is available, it is essential to note that the relief is not open-ended and it is contingent upon the diligence of the taxpayer. The revenue procedure provides for a 30-day safe harbor from penalties. This means that the taxpayer must take corrective action within 30 days of the end of the hardship or circumstances that previously prevented timely action. Therefore, if you believe you have made errors regarding your handling of an IRA rollover, addressing the problem as soon as possible is essential.

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Work with a U.S. Tax CPA For Your Tax Preparation Needs

IRAs and other retirement vehicles are necessary in today’s world. Unfortunately, problems due to the failure to reinvest a disbursement are only one of the complications that can result in penalties and tax consequences. Also consider that if you hold foreign retirement accounts, you may have certain disclosure and tax payment obligations on the account and income received. To discuss these and other tax concerns with a tax CPA with more than 30 years of experience, call Ted Kleinman at U.S. Tax help at (541) 923-0903 today.