IRS provides guidance on reporting rollovers of airline bankruptcy payments for 2014


The IRS has issued guidance that explains how certain airline employees must report rollovers of airline payment amounts for 2014 under P.L. 113-243, which amended certain provisions of the FAA Modernization and Reform Act of 2012 (FAA Act). On December 18, 2014, President Obama signed P.L. 113-243 to give American Airline employees the option to contribute bankruptcy settlements to traditional individual retirement accounts (IRAs) without incurring a penalty. This provision had been made available to employees of airlines following their bankruptcies, but had expired before American Airlines sought bankruptcy protection in 2011.

P.L. 113-243 amends the definition of “airline payment amount” in the FAA Act to include a payment made under the authority of a Federal bankruptcy court in a case filed on November 29, 2011 (i.e., the date American Airlines declared bankruptcy). It also amends the definition of “qualified airline employee” in the FAA Act to include an employee or former employee of a commercial passenger airline who was a participant in a defined benefit plan that was maintained by the airline and frozen effective November 1, 2012. Finally, P.L. 113-243 extends to April 15, 2015, the time for filing an amended return by a qualified airline employee who wants to exclude from gross income amounts rolled into a traditional IRA under the FAA Act. Therefore, a qualified airline employee (as now defined) can roll over into a traditional IRA up to 90 percent of the aggregate airline payment amounts received, provided that the rollover of any airline payment amount is completed within 180 days of receipt of the amount.

Reporting requirements

The IRS explains that qualified airline employees who received airline payment amounts should include the full amount on Form 1040 for the year of receipt. Up to 90 percent of the aggregate airline payment amounts may be excluded from income if rolled over to a traditional IRA within 180 days of receipt. To exclude these amounts for 2014, a qualified airline employee must file a paper Form 1040 and include the amount rolled over on line 21 of Form 1040 as a negative amount and write “airline payment” on the dotted line next to line 21.

The IRS provides the following example. If a qualified airline employee received a Form W-2 with airline payment amounts reported in box 1, the employee should include the full amount on line 7 of Form 1040. If the qualified airline employee rolled over those airline payment amounts to a traditional IRA (subject to the 90-percent limitation) within 180 days of receipt, the employee should report the rollover amount on line 21 as a negative number and write “airline payment” on the dotted line next to line 21.

Future guidance will provide any changes to these filing and reporting instructions for tax years after 2014, according to the IRS.

Source: IRS Announcement 2015-13, I.R.B. 2015-15, April 13, 2015.

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