PLR 1130014: IRS denied a waiver of the 60-day IRA rollover requirement

Plain-English summary

A taxpayer withdrew funds from an IRA intending to roll them over, but redeposited the funds after the 60-day period. The taxpayer cited job loss, a house fire, financial pressure, and a pending move. The IRS concluded that the distribution had been used as a short-term interest-free loan for personal living expenses and that the circumstances did not justify a waiver. The amount therefore was not treated as a valid rollover contribution and had to be included in gross income for 2008.

Ruling snapshot

• Question: Whether the IRS should waive the 60-day rollover requirement for an IRA distribution.
• Outcome: Denied.
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), and 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
ERVICE rs

12)
GOVERNMENT ENTITIES MAY 05 2011
DIVISION

Uniform Issue List: 408.03-00 Qe TT: Er. e. hme “T7

Legend:

Taxpayer A

Financial Institution B
IRA X

Amount 1

Dear

This is in response to your ruling request dated April 29, 2010, as supplemented by
correspondence dated February 21, 2011, in which you request 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:

Taxpayer A represents that he withdrew funds from his IRA totaling Amount 1.
Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period
prescribed by section 408(d) of the Code was due to financial difficulties involving the
loss of his job, a fire in his home and a pending move, as well as the downturn in the
economy and the decline in the value of his retirement funds.

Taxpayer A represents that he was the owner of IRA X, a qualified individual retirement
arrangement (“IRA”) established and maintained at Financial Institution B under the
rules of section 408 of the Code. Taxpayer A represents that on February 20, 2008, he
received a distribution totaling Amount 1 from IRA X due to financial pressures of losing
his job. Taxpayer A asserts that the withdrawal was made with the intent to rollover
pending a new job or sale of his home or farm. On March 6, 2008, Taxpayer A suffered
a fire to his home which exasperated his financial situation. Information submitted
indicates that Taxpayer A utilized the proceeds from IRA X until he received an

insurance settlement on his home. Amount 1 was subsequently re-deposited into IRA X
on September 3, 2008.

a

201130014

-2-

Based on the above facts and representations, Taxpayer A requests a ruling that the
Internal Revenue Service (“Service”) waive the 60-day rollover requirement contained in
section 408(d)(3) of the Code with respect to the distribution of Amount 1.

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.

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:

. 201130014

(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.

The information presented and the documentation submitted in this case indicates that
Taxpayer A withdrew Amount 1 from IRA X for use as a short term interest free loan to
cover personal living expenses. The Committee Report describing legislative intent
indicates that 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 and Rev. Proc. 2003-16.

Under the circumstances presented in this case, the Service hereby declines to waive
the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA X
and thus Amount 1 will not be considered a valid rollover contribution within the
meaning of section 408(d)(3) of the Code, because the 60-day rollover requirement was

not satisfied. Amount 1 must be included in Taxpayer A’s gross income for the 2008
taxable year.

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.

If you wish to inquire about this ruling, please contact xxxxxxxXXXXXXXXXXXX
(Government Identification Number xx-xxxxx) by phone at (xxx) xxx-xxxx or by fax at
(XXX) XXX-xxxx. Please address all correspondence to SE:T:EP:RA:T1.

Sincerely,

Cll Walbr?

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose