IRA rollover waiver granted after adviser fraud

Plain-English summary

A taxpayer withdrew her entire IRA on the advice of a longtime tax preparer who falsely claimed professional credentials and recommended moving the money to a non-IRA account. The adviser then fraudulently induced her to transfer part of the money to him, purportedly for taxes, and disappeared. The IRS found that her failure to complete a timely rollover of the amount still in the non-IRA account resulted from the adviser's misrepresentations and fraud. It waived the 60-day deadline under IRC § 408(d)(3)(I), giving her 60 days from the ruling to contribute no more than that remaining amount to a rollover IRA, provided she met the other rollover requirements.

Ruling snapshot

• Question: Will the IRS waive the 60-day deadline for rolling the remaining IRA distribution into another IRA?
• Outcome: Approved
• Key authorities: IRC §§ 72 and 408(d)(1), (3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

201443033

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 28 2014

Uniform Issue List: 408.03-00

XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

T:EP:RA:T1

Legend:

Taxpayer A = XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

IRA B = XXXXXXXXXXXXXXX
XXXXXXXXXXXXXX

Account C = XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

Financial Institution D = XXXXXXXXXXXXXXX

Individual E = XXXXXXXXXXXXXXX

Amount 1 = XXXXXXXXXXXXXX

Amount 2 = XXXXXXXXXXXXXX

Dear XXXXXXXXXXXXXX:

This letter is in response to your request for a ruling dated August 28, 2013, as
supplemented by correspondence received on February 21, 2014, March 28, 2014,
April 16, 2014, and May 16, 2014, 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 (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 from IRA B totaling Amount 1 in
2012. Taxpayer A asserts that her failure to accomplish a rollover of Amount 1 within

2 201443033

the 60-day period prescribed by section 408(d)(3) was due to misrepresentations and
fraudulent activity of Individual E.

Taxpayer A states that she owned IRA B with Financial Institution D. Taxpayer A had
her income tax returns prepared by Individual E for over 10 years. Individual E had
represented to Taxpayer A that he was an accountant with a Certified Public Accountant
certification and a law degree. While preparing Taxpayer A’s tax returns, Individual E
determined her entire retirement fund was held in IRA B. In 2012, Individual E told
Taxpayer A that he had worked out a custom financial plan for her that would require
her to take all of her money from IRA B and deposit them in another account, which
would be financially more advantageous to her. Based on Individual E’s advice, in
2012 Taxpayer A received Amount 1 from IRA B and deposited Amount 1 into Account
C, a non-IRA account. Subsequently, Individual E fraudulently induced Taxpayer A to
withdraw sums of money from Account C and transfer such to him to be used to pay her
tax liability in 2012 and any additional tax liability generated by the new financial plan.
Instead, Individual E deposited the money into his personal account and disappeared.
Individual E has since been formally indicted on charges of federal mail fraud, wire
fraud, and attempting to interfere with administration of internal revenue laws. Taxpayer
A has not recovered her loss. Taxpayer A represents that Amount 2 remains in Account
C and no other funds have been withdrawn from Account C for any other purpose.

Taxpayer A never intended to make taxable withdrawals from IRA B. The funds
(Amount 1) transferred from IRA B to Account C were to remain in a qualified IRA and
she relied on Individual E to act as advisor for her investment account. Taxpayer A did
not learn of Individual E’s fraudulent misrepresentations and activity until she received a
Form 1099 in early 2013.

Based on the foregoing facts and representations, you request a ruling that the Internal
Revenue Service (the “Service”) waive the 60-day rollover requirement with respect to
the distribution of Amount 2 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 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

3 201443033

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) 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 presented and documentation submitted by Taxpayer A is consistent
with her assertion that her failure to accomplish a timely rollover of Amount 2 was due to
Individual E’s misrepresentations and fraudulent activity with respect to the assets that
Taxpayer A entrusted to him.

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 2 from IRA B.
Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to
contribute a cash amount of not more than Amount 2 into a rollover IRA. Provided all
other requirements of section 408(d)(3) of the Code, except the 60-day requirement, are
met with respect to such contribution, the contribution will be considered a valid rollover
contribution within the meaning of section 408(d)(3) of the Code.

4 201443033

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.

A copy of this letter is being sent to your authorized representatives pursuant to a
Power of Attorney on file in this office.

If you wish to inquire about this ruling, please contact XXXXXXXXXXXXX (Identification
No. XXXXXXX) at (XXX) XXX-XXXX. Please address all correspondence to
SE:T:EP:RA:T1.

Sincerely,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose