PLR 1228044: IRS waives the 60-day rollover deadline after an IRA owner was defrauded

Plain-English summary

The IRS waived the 60-day rollover requirement for an older taxpayer who was misled by an individual into transferring IRA funds to an account controlled by the individual and an associated company. The taxpayer later learned of the fraud, liquidated enough assets to restore the IRA, and transferred the funds back. The IRS found that the submitted documentation substantiated the taxpayer’s representations and treated the contribution as a rollover, provided the other requirements of IRC § 408(d)(3) were met. The ruling did not authorize rollovers of amounts required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: May the IRS waive the 60-day IRA rollover requirement after the taxpayer was misled and defrauded?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(9), 408(d)(1), 408(d)(3), and 408(d)(3)(I); Rev. Proc. 2003-16; IRC § 6110(k)(3)

Full text (IRS public release)

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

201228044

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

APR 19 2012

T: EP: RA: T3

U.I.L. 408.03-00

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXXXXXXXXXXXXX
Individual M = XXXXXXXXXXXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXXXXXXXXX
Account C = XXXXXXXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXXXXXXXXX
Bank B = XXXXXXXXXXXXXXXXXXXXX
Company F = XXXXXXXXXXXXXXXXXXXXX
Company E = XXXXXXXXXXXXXXXXXXXXX
Date 1 = XXXXXXXXXXXXXXXXXXXXX
Date 2 = XXXXXXXXXXXXXXXXXXXXX

Dear XXXXXXXXXXX:

This letter is in response to your letter dated xxxxxxxx, as supplemented by
correspondence dated xxxxxxxxx, submitted on your behalf by your authorized
representative, in which you request a waiver of the 60 day rollover requirement
contained in section 408(d)(3) of the Internal Revenue Code (Code).

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

Taxpayer A, age 74, is a widow whose husband handled all financial matters
prior to his death. Taxpayer A maintained IRA X with Company E. IRA X held
assets worth Amount D. On Date 1, Taxpayer A requested Company E make a
direct rollover of the total cash available from her IRA X into Account C.

Company E liquidated IRA X and made the transfer in a series of transactions
over the next few weeks to Account C.

Taxpayer A represents that at the time of transfer she did not know that
Company F was not an eligible non-bank IRA custodian. She further represents
that Individual M, with whom she became friendly over a period of months,
fraudulently persuaded her to transfer the funds from IRA X to Account C.
Individual M also led Taxpayer A to believe that Company F had existed for a
long time; however, Company F actually had existed for less than a year.

Taxpayer A states that she never intended to make a taxable withdrawal and she
wanted to keep her funds in an IRA account. Taxpayer A states that she relied
upon Individual M for financial advice and she thought that Individual M was
protecting her assets. Account C was in fact an account with Bank B in the name
of Company F and Individual M, not Taxpayer A, had control of the account.

Taxpayer A asserts that she learned that Individual M had a history of defrauding
the elderly when her son became suspicious and investigated. In conjunction
with this investigation, Taxpayer A’s son discovered that Individual M had
invested Taxpayer A’s funds in gold and other collectibles and had taken a
portion of Taxpayer A’s money either through charging commissions or
overstating the purchase prices of items. In addition, Taxpayer A learned that
Individual M had previously been convicted of fraud and served jail time.

Upon learning that Individual M defrauded Taxpayer A, her son assisted
Taxpayer A with liquidating sufficient gold in order for Taxpayer A to restore her
IRA and transferred the funds back into IRA X. On Date 2, Taxpayer A
transferred Amount D back into IRA X with Company E.

Documentation submitted substantiates Taxpayer A’s representations.

Based upon the foregoing facts and representations, Taxpayer A requests that
the Service waive the 60 day rollover requirement with respect to the distribution
of Amount D from IRA X.

201228044

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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 received 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 included 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)(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 and good
conscience, including casualty, disaster, or other events beyond the reasonable
control of the individual subject to such requirement. Only distributions that occur

201228044

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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, or hospitalization, incarceration, restrictions imposed by a
foreign country or postal error; (3) the use of 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 documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a rollover of Amount D
was due to the fact that she was misled and defrauded by Individual M.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of Amount
D. Provided all other requirements of Code section 408(d)(3), except the 60-day
requirement were met, the contribution of Amount D to IRA X on Date 2 will be
considered a rollover contribution within the meaning of section 408(d)(3) of the
Code.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 401(a)(9) of the Code.

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

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

A copy of this letter is being sent to your authorized representative pursuant to a
power of attorney on file in this office.

201228044

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If you have any questions concerning this ruling, please contact xxxxxxxxxxxxxx,
SE: T: EP: RA: T3, at xxxxxxxxxxxxxxx.

Sincerely yours,

Laura B. Warshawsky, Manager

Employee Plans Technical Group 3

Enclosures:

Deleted copy of letter ruling
Notice 437

Cc: XXXXXXXXXXXXXXXX