PLR 200421003: IRS denies waiver of missed IRA rollover deadline

Plain-English summary

A surviving spouse received a distribution from an inherited IRA and deposited it in a savings account. The spouse learned from a tax preparer, after the 60-day deadline had passed, that the distribution could have been rolled into a spousal IRA. The spouse asked the IRS to waive the deadline, saying the IRA custodian had not explained the available options. The IRS denied the request. It found that putting the funds in a savings account did not serve the rollover rules' purpose of moving money between eligible plans, and that the facts did not show hardship justifying a waiver.

Ruling snapshot

• Question: Could the surviving spouse receive a waiver of the 60-day IRA rollover deadline?
• Outcome: Denied.
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

200421003

INTERNAL REVENUE SERVICE

Uniform Issue List: 408.03-00

FEB 27 2004

T:EP:RA:T4

Legend:

Taxpayer A=

Amount B=

IRA C=

Bank D=

IRA E=

Brokerage Firm F=

Dear :

This is in response to your request of , through your authorized representative, for a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code (the Code).

The following facts and representations have been submitted under penalty of perjury in support of the ruling requested:

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You were previously married to and were the spousal beneficiary of IRA C account. passed away on . During the

proceedings of estate administration, the custodian bank provided you with an election form necessary for the distribution of the IRA C account but gave you no explanation or information on any distribution options and you signed it on . About

, you received Amount B from the custodian and deposited it into your savings account at Bank D.

It was not until you received your Form 1099R showing Amount B as a taxable distribution that you contacted your customary tax preparer. It was then that you learned that the distribution of Amount B could have been rolled over as your own spousal IRA to avoid any adverse tax consequences. Any effort to rectify the incorrect distribution was too late because the 60-day period allowed by the Code to avoid the tax liability had already expired. You have already used Amount B to established IRA E at Brokerage Firm F since April 2003.

You represent that no other amount was distributed from IRA C within the one year period since the last distribution.

Based on the above facts and representations, you request that the Service waive the 60-day rollover requirement with respect to the distribution of Amount B because the failure to waive such requirement would be against equity or good conscience.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d), any amount paid or distributed out of an IRA shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72 of the Code.

Section 408(d)(3) of the Code defines, and provides the rules applicable to IRA rollovers.

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) of the Code does not apply to any amount paid or distributed out of an IRA to the individual for whose benefit the IRA is maintained if—

(i) the entire amount received (including money and any other property) is paid into an IRA for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution; or

(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan (other than an IRA) for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid

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into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to section 408(d)(3)).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) does not apply to any amount described in section 408(d)(3)(A)(i) received by an individual from an IRA if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in section 408(d)(3)(A)(i) from an IRA which was not includible in gross income because of the application of section 408(d)(3).

Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for partial rollovers.

Section 408(d)(3)(I) of the Code provides that the Secretary may waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) of the Code where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of the Code.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359, provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I), the Service will consider all relevant facts and circumstances, including: (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.

It appears from the information you submitted that you relied solely on the custodian information regarding the IRA C distribution. The Committee Report describing legislative intent indicates that the Congress enacted the rollover provisions to allow portability between eligible plans including IRAs. Using an IRA distribution as a deposit to a savings account is not consistent with the intent of Congress to allow portability between eligible plans. The information presented does not demonstrate hardship that would justify a waiver of the 60-day rollover period pursuant to section 408(d)(3)(I) of the Code. Under these circumstances, the failure to waive the 60-day requirement would not be against equity or good conscience.

Therefore, the Service hereby denies the request to waive the 60-day rollover requirement with respect to the distribution of Amount B.

200421003

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No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations which may be applicable thereto.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

A copy of this letter has been sent to your authorized representative in accordance with a power of attorney on file in this office.

If you wish to inquire about this ruling, please contact , I.D. # , at
. Please address all correspondence to

Sincerely yours,
, Manager

Employee Plans Technical Group 4

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

Cc: