The IRS has issued two new safe harbor explanations to be given to participants receiving a distribution by qualified plans to satisfy the requirements of IRC §402(f). The new documents have been updated to take into account changes to the law made by the SECURE Act and the CARES Act related to qualified retirement plans in Notice 2020-40.[1] The new documents update the notices found in Notice 2018-74.

The IRS has revised the safe harbor notices for notices to qualified retirement plan participants who receive an eligible rollover distribution in Notice 2018-74, modifying and updating Notice 2014-74. The Notice was issued to update those documents for the following issues per the IRS explanation:

The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”), P.L. 115-97) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47, 2016-37 I.R.B. 346), and include other clarifying changes.

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In PLR 201835017 the IRS granted a taxpayer a waiver of the 60-day deadline to roll over a distribution she received from a qualified retirement plan.  She received this relief because she claimed she had previously relied on her spouse to handle all tax and financial matters, but the couple had separated during the 60-day period.

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A surviving spouse was being paid out of an employer sponsored retirement plan based on an account held by the now deceased spouse.  In Information Letter INFO 2017-0030 the IRS addressed the question of whether, now that the surviving spouse had passed away, the balance of the account could be transferred to an inherited IRA for the benefit of a beneficiary of the surviving spouse.

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The IRS claimed that prior to the publication of Rev. Proc. 2016-47 those involved in the examination of a taxpayer’s return were barred from considering granting a waiver of the 60-day rollover period—the taxpayer had to have applied for a private letter ruling request for a waiver under Rev. Proc. 2003-16.  The Tax Court, ruling in the case of Trimmer v. Commissioner, 148 TC No. 14, did not find that the IRS was operating under any such restriction and ruled that the Tax Court had jurisdiction to consider whether the IRS had abused its discretion in refusing to grant such a waiver.

Mr. Trimmer suffered from major depressive disorder after a job he believed he had secured for himself to supplement his income after retiring from the New York Police Department fell through and he was unable to find substitute work.  Shortly after he began suffering from the disorder he received distribution checks from his retirement account.  He left the checks on his dresser at home for over a month and then deposited them into a regular, non-IRA bank account.

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The IRS, likely hoping to reduce the number of letter ruling requests related to late IRA rollovers, has released Revenue Procedure 2016-47 that provides automatic relief for certain late rollovers of IRAs and qualified plan distributions.  The procedure generally allows a plan administrator, IRA custodian or trustee to rely upon a certification from a taxpayer in accepting a rollover from a taxpayer that he/she meets certain requirements qualifying for automatic relief from late rollovers.  However, if the administrator, custodian or trustee is aware the certification is not correct, he/she will not be allowed to rely on the certification.

Previously Revenue Procedure 2013-16 provided for automatic relief only in limited situations related to errors committed by financial institutions.  Otherwise a taxpayer generally had to apply and pay for a private letter ruling granting relief.

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