Late Roth IRA recharacterization receives 60-day extension

Plain-English summary

A taxpayer timely asked an IRA custodian to reverse a Roth conversion, but the custodian did not receive a required signature page and the taxpayer did not receive the custodian's follow-up letter. The taxpayer discovered after the deadline that the recharacterization had not occurred and sought relief before the IRS found the omission. Because the relevant limitations period remained open, the IRS concluded that the filing-relief requirements were met and granted 60 days from the ruling date to complete the recharacterization.

Ruling snapshot

• Question: Could the taxpayer receive additional time to recharacterize a Roth IRA conversion as a contribution to a traditional IRA?
• Outcome: Approved
• Key authorities: IRC § 408A(d); Treas. Reg. §§ 1.408A-5 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

201449013

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 11 2014

Uniform Issue List: 9100.00-00; 408A.00-00

T:EP:RA:T2

Legend:

Taxpayer = ****
Custodian = ***
Amount A = ***
IRA X = ***********

IRA Y = ***********

Dear ****:

This is in response to your request dated October 15, 2012, as supplemented by information you submitted on August 14, 2013, January 29, 2014, and June 26, 2014, in which you request relief under section 301.9100-3 of the Procedure and Administrative Regulations (the "P&A Regulations"). The following facts and representations have been submitted under penalty of perjury in support of the ruling requested.

Taxpayer files Form 1040, U.S. Individual Income Tax Return with her spouse jointly as a married couple. Taxpayer owns IRA Y, a Roth individual retirement account described in section 408(a) of the Internal Revenue Code (“Code”), and maintained by Custodian M. During 2010, Taxpayer converted her traditional IRA X to IRA Y. On March 17, 2011, Taxpayer requested to recharacterize IRA Y back to traditional IRA X. Taxpayer completed and signed the required paperwork and returned it to Custodian. Custodian never received the signature page and did not complete the transaction. On March 22, 2011, Custodian mailed a letter to Taxpayer requesting the signature page of

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the form, but Taxpayer never received the correspondence. Custodian never recharacterized the IRA.

Taxpayer's request for relief under section 301.9100-3 of the P&A Regulations was filed after discovering that they had missed the deadline to recharacterize Roth IRA Y back to a traditional IRA, and prior to the Internal Revenue Service (the "Service") discovering that Taxpayer A had not timely elected to recharacterize Roth IRA Y to a traditional IRA. The statute of limitations on Taxpayer's Federal Income Tax Return for 2010 is still open.

Based on the foregoing facts and representations, you have requested a ruling that, pursuant to section 301.9100-3 of the P&A Regulations Taxpayer A may be granted a period not to exceed 60 days from the date of issuance of this ruling to make an election under section 1.408A-5 of the Income Tax Regulations (the “I.T. Regulations”) to recharacterize Amount A as a contribution to a traditional IRA.

With respect to your request for relief under section 301.9100-3 of the P&A Regulations, section 408A(d)(6) of the Code and section 1.408A-5 of the I.T. Regulations provide that, except as otherwise provided by the Secretary, a taxpayer may elect to recharacterize an IRA contribution made to one type of IRA as having been made to another type of IRA by making a trustee-to-trustee transfer of the IRA contribution, plus earnings, to the other type of IRA. In a recharacterization, the IRA contribution is treated as having been made to the transferee IRA and not the transferor IRA. Under section 408A(d)(6) of the Code and section 1.408A-5 of the I.T. Regulations, this recharacterization election generally must occur on or before the date prescribed by law, including extensions, for filing the taxpayer's Federal Income Tax Return for the year of contribution.

Section 1.408A-5, Q&A-6, of the I.T. Regulations describes how a taxpayer makes the election to recharacterize the IRA contribution. To recharacterize an amount that has been converted from a traditional IRA to a Roth IRA: (1) the taxpayer must notify the Roth IRA trustee of the taxpayer's intent to recharacterize the amount, (2) the taxpayer must provide the trustee (and the transferee trustee, if different from the transferor trustee) with specified information that is sufficient to effect the recharacterization, and (3) the trustee must make the transfer.

Section 408A(d)(3)(C) provides that a conversion of a traditional IRA to a Roth IRA is treated as a rollover from the traditional IRA to the Roth IRA.

Sections 301.9100-1, 301.9100-2, and 301.9100-3 of the P&A Regulations, in general, provide guidance concerning requests for relief submitted to the Service on or after December 31, 1997. Section 301.9100-1(c) of the P&A Regulations provides that the Commissioner of Internal Revenue, in his discretion, may grant a reasonable extension of the time fixed by a regulation, a revenue ruling, a revenue procedure, a notice, or an announcement published in the Internal Revenue Bulletin for the making of

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an election or application for relief in respect of tax under, among others, Subtitle A of the Code.

Section 301.9100-2 of the P&A Regulations lists certain elections for which automatic extensions of time to file are granted. Section 301.9100-3 generally provides guidance with respect to the granting of relief with respect to those elections not referenced in section 301.9100-2. The relief requested in this case is not referenced in section 301.9100-2.

Section 301.9100-3 of the P&A Regulations provides that applications for relief that fall within section 301.9100-3 will be granted when the taxpayer provides sufficient evidence (including affidavits described in section 301.9100-3(e)(2)) to establish that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief would not prejudice the interests of the Government.

Section 301.9100-3(b)(1) of the P&A Regulations provides that a taxpayer will be deemed to have acted reasonably and in good faith (i) if its request for section 301.9100-1 relief is filed before the failure to make a timely election is discovered by the Service; (ii) if the taxpayer failed to make the election because of intervening events beyond the taxpayer's control; (iii) if the taxpayer failed to make the election because, after exercising reasonable diligence, the taxpayer was unaware of the necessity for the election; (iv) the taxpayer reasonably relied upon the written advice of the Service; or (v) the taxpayer reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.

Section 301.9100-3(c)(1)(ii) of the P&A Regulations provides that ordinarily the interests of the Government will be treated as prejudiced and that ordinarily the Service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute of limitations before the taxpayer's receipt of a ruling granting relief under this section.

In this case, Taxpayer submitted a request to Custodian to accomplish a timely recharacterization. However, due to a communication failure, Taxpayer was unaware until after the deadline had passed that she never completed the request and thus Custodian did not accomplish the requested recharacterization.

With respect to your request, based on the information submitted and documentation presented, Taxpayer meets the requirements of section 301.9100- 3(b)(1) of the P&A Regulations under clause (i). In addition, since the statute of limitations is still open, under section 301.9100-3(c)(1)(ii) of the P&A Regulations, granting relief will not prejudice the interests of the Government.

Accordingly, Taxpayer is granted an extension of 60 days as measured from the date of the issuance of this ruling letter to recharacterize Amount A as a contribution to a traditional IRA.

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No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of the Code, I.T., or P&A Regulations which may be applicable thereto.

This ruling 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 by others as precedent.

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

If you wish to inquire about this ruling, please contact *** (ID# -
*) at ()-****. Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Jason E. Levine, Manager
Employee Plans Technical Group 2

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

Cc: ****