Unclaimed property distributions allowed as self-certified rollovers

By Sally P. Schreiber. J.D.

In response to requests from stakeholders, the IRS issued guidance adding state unclaimed property fund distributions to the list of reasons that taxpayers may self-certify that they missed the 60-day deadline to roll over funds to a qualified retirement plan (Rev. Proc. 2020-46). It also added a requirement to report and withhold from these distributions.

Rev. Proc. 2020-46 updates Rev. Proc. 2016-47, which lists permissible reasons for self-certification of eligibility for a waiver of the 60-day rollover requirement of distributions to eligible retirement plans, adding to that list a new reason: a distribution was made to a state unclaimed property fund. As under Rev. Proc. 2016-47, a self-certification relates only to the reasons for missing the 60-day deadline, not to whether a distribution is otherwise eligible to be rolled over.

An IRA trustee, custodian, or issuer or a plan administrator may rely on the taxpayer’s self-certification under the revenue procedure to accept and report receipt of a rollover contribution, unless that person is aware of facts contrary to the certification. The taxpayer may report a contribution made under a self-certification as a valid rollover unless and until the IRS determines otherwise. The self-certification must conform “in all material respects” to the sample in the appendix of the revenue procedure, which is attached to the updated revenue procedure.

For taxpayers to qualify for self-certification, the IRS cannot have previously denied relief for the rollover.

Reporting requirement

In Rev. Rul. 2020-24, the IRS added a withholding and reporting requirement for distributions from state unclaimed property funds of retirement funds.

The IRS ruling held that an individual payment of an accrued benefit from a qualified retirement plan is subject to federal income tax withholding under Sec. 3405.

In addition, the payment is subject to reporting under Sec. 6047. That reporting obligation is satisfied by issuing Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The 2020 instructions to Form 1099-R provide that it must be filed for each person to whom a designated distribution of $10 or more has been made, and the total amount of the distribution (before income tax or other withholding) must be reported in box 1 of Form 1099-R, and the federal income tax withheld must be reported in box 4.

Effective dates

Rev. Rul. 2020-24 gives transition relief by providing that a person will not be treated as failing to comply with these withholding and reporting requirements for payments made before the earlier of Jan. 1, 2022, or the date it is reasonably practical to comply with those requirements.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.

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