IRS waives a 60-day IRA rollover deadline after tax advisor error

Plain-English summary

An IRA owner received a distribution larger than intended after relying on incorrect advice from her tax advisor. She sought a waiver of the 60-day rollover deadline for the excess amount and had not used that amount for another purpose. The IRS waived the deadline and gave her 60 days from the ruling date to contribute the excess, or part of it, to a rollover IRA. The ruling did not authorize the rollover of amounts required to be distributed under section 401(a)(9).

Ruling snapshot

• Question: Can the taxpayer roll over the excess IRA distribution after missing the 60-day deadline?
• Outcome: Approved, with a new 60-day period to make the rollover contribution.
• Key authorities: IRC §§ 72, 401, 408, and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

201407031

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

TAX EXEMPT AND NOV 21 2013

GOVERNMENT ENTITIES
DIVISION

[illegible handwritten notation]

Uniform Issue List: 408.03-00
Legend

Taxpayer A =

IRA B =

Account C =

Financial Institution D =

Attorney E =

Amount 1 =

Amount 2 =

Amount 3 =

Amount 4 =

Dear :

This is in response to your request dated April 15, 2013, as supplemented by correspondence received on September 16, 2013, in which you request, through your authorized representative, 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 she received a distribution equal to Amount 1 from IRA B, which was maintained by Financial Institution D. Taxpayer A asserts that

201407031

2

her failure to accomplish a rollover of a portion of the distribution equal to Amount 4 within the 60-day period prescribed by 408(d)(3)(A) was due to her reliance on incorrect information provided by her tax advisor, Attorney E, regarding the distribution of Amount 1 from IRA B.

Since 2006, Attorney E has assisted Taxpayer A in legal matters including preparing Taxpayer A’s federal income tax returns. In October of 2012, Attorney E advised Taxpayer A to request a larger distribution than Amount 2, the required minimum distribution from IRA B, for the purpose of offsetting deductions incurred in the 2012 taxable year. On December 17, 2012, Attorney E assisted Taxpayer A in requesting a distribution equal to Amount 1 from IRA B. Pursuant to this request, on December 17, 2013, Amount 3, an amount equal to Amount 1 less Amount 2, was transferred from IRA B to Account C. Account C is a non- IRA account that is also maintained by Financial Institution D.

On March 13, 2012, while preparing Taxpayer A’s tax return for 2012, Attorney E discovered that she miscalculated and Amount 1 was in excess of the amount that should have been distributed from IRA B in order to offset the Taxpayer A’s deductions for that year. Rather than a net zero tax as Attorney E intended, the distribution of Amount 1 resulted in a substantial tax liability for Taxpayer A. According to Attorney E’s revised calculations, Amount 1 less Amount 4 should have been distributed from IRA B.

Taxpayer A submitted documentation showing her reliance on Attorney E. Except for the required minimum distribution, Taxpayer A has not used the distribution Amount 1 for any other purpose.

Based on the above facts and representations, Taxpayer A requests that the Service waive the 60-day rollover requirement with respect to the distribution of Amount 4 from IRA B.

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.

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) 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 or 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

201407031

3

(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 of the Treasury may waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) 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).

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) of the Code, 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.

The information and documentation provided by Taxpayer A are consistent with her assertion that the failure to accomplish a rollover of Amount 4 within the 60- day period prescribed by section 408(d)(3)(A) of the Code was due to her reliance on incorrect information provided by her tax advisor, Attorney E, regarding the distribution of Amount 1 from IRA B.

201407031

4

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 1 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount 4 or a portion thereof into a rollover IRA account. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contributions, Amount 4 will be considered a rollover contribution within the meaning of section 408(d)(3).

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 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.

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

If you wish to inquire about this ruling, please contact

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

CC: