PLR 1311043: IRS waives the 60-day rollover deadline after misleading tax advice

Plain-English summary

The IRS waived the 60-day rollover requirement for an elderly taxpayer who moved an IRA distribution into a non-IRA trust account after receiving misleading advice from a CPA and financial adviser. The taxpayer kept the amount invested and did not use it for another purpose. The IRS granted 60 days from the ruling date to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: What relief did the IRS grant under the applicable rollover or pension funding rules?
• Outcome: Approved.
• Key authorities: IRC § 408

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 2913] 10483

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 26 2012
Uniform Issue List: 408.03-00

TEP RAT 3

Legend:
Taxpayer A:
Amount M:

IRA X:

Financial Advisor H:
CPA A:

Trust Account Y:
Dear

This is in response to letters dated January 3, 2012, and June 14, 2012, as
supplemented by correspondence dated July 17, 2012, and September 14,
2012, submitted by your authorized representative on your behalf, 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 penalty of
perjury in support of the ruling requested.

Taxpayer A, age 91, owned an Individual Retirement Account (IRA), IRA X,
sponsored by Financial Advisor H. Taxpayer A represents that on June 29, 2011,
he received a distribution of Amount M from IRA X. Taxpayer A asserts that his
failure to complete a rollover of Amount M within the 60-day period prescribed by
section 408(d)(3) of the Code was due to misleading tax advice from CPA A and
Financial Advisor H.

In March, April, and May of 2011 Taxpayer A was planning to change brokers
and to roll over IRA X to a different IRA which would be serviced by a new

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broker. During this process he had multiple conversations with Taxpayer's prior
CPA, CPA A, regarding loans that were made personally and had become bad
debts. Taxpayer A discussed this bad debt and the funds that Taxpayer A
intended to roll over within the required 60-day period.

Taxpayer A spoke with an associate at CPA A's office on multiple occasions,
both before and after the IRA X distribution, who provided advice to Taxpayer A
that the investment losses incurred because of the bad debts could be offset
against the income from the IRA distribution. Taxpayer A also received advice
from Financial Advisor H that Taxpayer A could offset the bad debt losses
against the IRA distribution income.

Following the advice from Financial Advisor H and CPA A, on 6/29/11, Amount M
was transferred from IRA X to Trust Account Y, a non-IRA account, with the
understanding on the part of Taxpayer A that because of the bad debt loss offset
in year 2011, he would not need to rollover Amount M.

On December 9, 2011, Taxpayer A was informed that contrary to the advice he
had received, the bad debt losses were capital in nature and could not be
deducted against the ordinary income in connection with the Amount M
distribution from IRA X that had not been rolled over.

In a letter dated July 17, 2012, CPA A stated that his office provided incorrect tax
information to Taxpayer A in June 2011.

Amount M has been invested in Trust Account Y to which it was transferred and
was never used for any other purpose.

Based on the facts and representations, you request a ruling that the Internal
Revenue Service (Service) waive the 60-day rollover requirement with respect to
the distribution of Amount M 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 --

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(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 60
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)(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.

Page 4

The information presented and documentation submitted by Taxpayer A is
consistent with his assertion that his failure to accomplish a timely rollover of
Amount M was due to misleading tax advice from his CPA.

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
M from IRA X. Pursuant to this ruling letter, Taxpayer A is granted a period of 60
days from the date of the issuance of this letter ruling to make a rollover
contribution of Amount M to a rollover IRA. Provided all other requirements of
Code section 408(d)(3), except the 60-day requirement, are met with respect to
such contribution, Amount M will be considered a valid rollover contribution within
the meaning of section 408(d)(3) of the Code.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling
is being sent to your authorized representative.

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 have any questions, please contact

SE:T:EP:RA:T:3
Sincerely yours,
Laura B. Warshawsky, Manager
Employee Plans Technical Group 3
Enclosures:

Deleted Copy of Ruling Letter
Notice of Intention to Disclose

cc:

991311048