2014 Return Paper Filing Mandated for Airline Employees Taking Advantage of Expansion of IRA Rollover Program

The paper income tax return makes a comeback—at least for certain airline employees affected by a change found in P.L. 113-243.  In Announcement 2015-13 the IRS provided guidance on reporting rollovers authorized by this act that requires individuals claiming the benefits of this law change for a 2014 payment to file their tax return in paper form.

In 2012 Congress passed the original provision as part of the FAA Modernization and Reform Act of 2012 to allow airline employees receiving payments from an airline that was in a bankruptcy case filed after September 11, 2001 and before 2007 in respect of claims of an employee who was a participant in a defined benefit plan against the employer.

The employee was allowed, for a 180-day period, to transfer up to 90% of the payment to a traditional IRA.  Since prior relief allowed employees to roll the payment into a Roth IRA (allowing growth to be tax free, but no current deduction for the rollover), the Act allowed those employees to transfer up to 90% of what they had previously rolled to the Roth IRA.

The revision to the law, passed in December of 2014, amended the FAA Modernization and Reform Act of 2012. Announcement 2015-13 describes the change as follows:

P.L. 113-243 amended 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. It also amended 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 maintained by the airline, which plan was frozen effective November 1, 2012. Finally, P.L. 113-243 extended 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 §1106(a)(1) or (2) of the FAA Act. P.L. 113-243 did not modify the provision of the FAA Act that specifies that rollover treatment is only available to amounts rolled over within 180 days of receipt, or if later, within 180 days of enactment of the FAA Act.

Thus, pursuant to the FAA Act as amended by P.L. 113-243, 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.

In the original act required an airline making such a payment report the payment to the IRS and the employee within 90 days of payment (or, if later, 90 days after the FAA Act was enacted).  Form 8935, Airline Payments Report, was used for that report.  However Congress, in enacting this change in the law did not expand the reporting requirements—thus payments that qualify solely based on the 2014 changes are not reported to the IRS, creating a bit of an issue.

To handle this reporting/information matching issue, the IRS has issued guidance in Announcement 2015-13 to deal with reporting on 2014 returns.  The guidance provides:

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.  For 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.

The announcement ends by noting the IRS will provide future guidance for reporting for years after 2014.