PLR 200707160: IRA rollover waiver denied for retirement-home purchase

Plain-English summary

An IRA owner withdrew funds to buy a retirement home and expected sales of other properties to provide money for a rollover within 60 days. When those sales did not occur, the owner sought a credit line, but loan approval arrived too late. The IRS denied a waiver under IRC § 408(d)(3)(I). It viewed the withdrawal as a short-term interest-free loan for personal expenses rather than a transfer between retirement plans. The facts did not justify relief, so the attempted contribution would not qualify as a valid rollover.

Ruling snapshot

• Question: Did delayed property sales and loan approval justify waiving the IRA rollover deadline?
• Outcome: Denied; the distribution was used to finance a personal home purchase.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DEC 20 2006

Uniform Issue List: 408.03-00

T: EP: RA: T3

Legend:

Company A =

Company B =

Amount G =
Date J =
Date K =
State M =

IRA X =

Dear

This is in response to your request for a letter ruling dated July 5, 2006, regarding the waiver of the 60-day rollover requirement, as authorized under section 408(d)(3)(I) of the Internal Revenue Code (“the Code”), with respect a distribution from an individual retirement arrangement (“IRA”) (“IRA X”). Correspondence dated August 5, 2006, and September 22, 2006, supplemented the request.

You assert that your failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to your not receiving approval for a loan within the applicable 60-day period.

Under penalty of perjury, you have submitted the following facts and representations:

You maintained IRA X with Company A. On Date J, 2006, you withdrew Amount G from IRA X for the purpose of purchasing a retirement home in State M. You also

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had other properties for sale in different states. You believed that the sales of those additional properties would close within 60 days of the distribution of Amount G from IRA X, thus allowing you to roll back the funds into IRA X. However, the properties did not sell, and, as the deadline for rolling over the funds, Date K, 2006, approached, you did not have sufficient funds on hand to complete the rollover. You then applied for a line of credit loan from Company B in the amount of Amount G. Representatives of Company B assured you that the loan would be approved in time to allow you to roll Amount G into an IRA. However, the approval took longer than expected, and the line of credit was not approved by Date K, 2006.

Based on the forgoing, you request a ruling that the Service waive the 60-day rollover requirement, as authorized under section 408(d)(3)(I) of the Code, with respect to the distribution of the Company B stock certificate from IRA X

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 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.

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Section 408(d)(3)(E) of the Code provides that the rollover provisions of section 408(d) do not apply to any amount required to be distributed under section 408(a)(6).

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 (January 27, 2003) 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 facts that you used the funds from your IRA X distribution to purchase a retirement home, in a transaction that amounted to a short term interest free loan. The Committee Report describing legislative intent indicates that the Congress enacted the rollover provisions to allow portability between eligible plans including IRAs. Using a distribution as a short term loan to cover personal expenses is not consistent with the intent of Congress to allow portability between eligible plans. The information presented does not demonstrate circumstances that would justify a waiver of the 60-day rollover period pursuant to section 408(d)(3)(I) of the Code.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service declines to waive the 60-day rollover requirement with respect to the distribution of Amount G.

Thus, Amount G will not be considered a valid rollover because the 60-day requirement under section 408(d)(3) of the Code with respect to such contribution will not be satisfied.

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.

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If you wish to inquire about this ruling, please contact ** (ID -) at () -*. Please address all correspondence to SE:T:EP:RA:T:T3

Sincerely yours,

Frances V. Sloan, Manager,
Employee Plans Technical Group 3

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