Tax law is a very complex area of the law. The vast size of the Internal Revenue Code and is myriad regulations and case law interpreting that material makes it difficult for anyone to easily grasp the material. However, some tax laws are not that complex but make up for their ease of understanding by being just as easy to violate.
For instance, investments in an IRA or 401k are subject to tax liability and penalties if withdrawn, if that occurs prior to the taxpayers 59 and a half birthday. In many cases, a taxpayer may need to roll such an investment from one account into another. The IRS has provided the taxpayer a window of 60 days in which to avoid paying the penalties for an early withdrawal that is then rolled over into another IRA or 401k.
Nonetheless, taxpayers in Ohio and elsewhere do miss that deadline. Previously, the IRS had required the taxpayer to then request a Private Letter Ruling, where the IRS issues a letter that is binding on the Service and the taxpayer for a specific set of facts. Requesting a PLR often requires the services of a tax lawyer and is expensive, even for such a straightforward matter.
The IRS has now issued Revenue Procedure 2016-47, which lists 11 excuses for missing the 60-day deadline involving errors or inadvertence, such as a financial institution making a mistake or the check becoming lost and never cashed that can be put in a letter to the custodian that receives the rollover, and avoid the penalties that would otherwise accrue.
You will want to keep a copy of the letter, but you do not have to file it with your taxes. However, if this happens, you need to pay close attention to any other similar accounts and the IRS only permits one rollover per 365-day period. More than one, and you will pay the tax, penalties and any other costs.