IRS issues guidance on IRA revocations.

• Author: Fiore, Nicholas J.

Reporting is required for all contributions to or distributions from an individual retirement arrangement (IRA), including an IRA that has been revoked. An exception is made for reporting contributions transferred from another IRA, but no exception is made for reporting distributions for the transferee IRA, whether or not that transferee IRA is later revoked. Thus, any distribution from a revoked IRA must be reported.

An IRA can be opened through a regular contribution, a rollover, or a transfer from another IRA trustee. A rollover involves a distribution of assets from a qualified retirement plan or an IRA to an individual, followed by a contribution of those assets to an IRA. An IRA transfer involves movement of the assets from one IRA trustee to another IRA trustee, without any distribution to the individual. Such transfers are not subject to the distribution reporting requirements.

An amount may be distributed from a qualified plan directly to an IRA at the direction of the individual. This transaction is treated as a distribution and must be so reported.

Regs. Sec. 1.408-6(d)(4(ii) provides that an institution selling an IRA must either provide disclosure documents seven days before an IRA is opened or allow the buyer seven days after the IRA is established to revoke the IRA. This revocation option permits the buyer to remove the entire contribution and close the IRA without being charged a fee for opening or closing the IRA.

The reporting requirements authorized under Secs. 408(i) and 6047(d) apply to contributions to and distributions from IRAs, even if the IRA is revoked. Thus, a Form 5498, Individual Retirement Arrangement Information, should be filed to report a contribution to an IRA even if the IRA is later revoked under Regs. Sec. 1.408-6(d)(4)(ii).

An exception is made for amounts transferred from one IRA to another IRA. In this case, the transferor IRA institution will...