Incorrect advice excuses late IRA redeposit

Plain-English summary

A taxpayer withdrew money from his IRA to pay off a home equity loan so he could co-sign his son's mortgage. An adviser told him to replace the funds with a new home equity loan after the mortgage closed, but gave him the wrong number of days in the rollover period. When the taxpayer learned the advice was incorrect, he immediately re-established the home equity loan and redeposited the distributed amount into the IRA. The IRS found that the missed deadline resulted from the adviser's incorrect advice and waived the 60-day rollover requirement under IRC § 408(d)(3)(I). The redeposit was treated as a rollover if all other statutory requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a rollover waiver after an adviser misstated the deadline for replacing IRA funds?
• Outcome: Approved, with the completed redeposit treated as a rollover if all other requirements were met
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

SEP 30 2014

U.I.L. 408.03-00

XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXXXXX
Individual B = XXXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXXX
Company F = XXXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXXXX
Credit Union E = XXXXXXXXXXXXXXX

Dear XXXXXXXXX:

This letter is in response to your request dated April 6, 2014, as supplemented by
correspondence dated July 23, 2014, and August 28, 2014, 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 he received a distribution from IRA X of Amount D.
Taxpayer A asserts that his failure to accomplish a rollover within the 60-day
period prescribed by section 408(d)(3) of the Code was due to the incorrect
advice of Individual B.

Taxpayer A maintained IRA X with Company F. Taxpayer A represents that
upon the advice of Individual B, he withdrew Amount D on February 28, 2013,
from IRA X in order to pay off a home equity loan so that he could be a co-signer
on his son’s mortgage loan.

Taxpayer A relied upon the advice of Individual B who told Taxpayer A to
withdraw funds from IRA X to pay off his home loan equity and after his son’s
mortgage loan was secured, Taxpayer A should get another home equity loan to
deposit the funds back into IRA X during the applicable rollover period. However,
Individual B told Taxpayer A the incorrect number of days in the rollover period.

On April 30, 2013, Taxpayer A learned for the first time that Individual B's advice
was wrong when he talked with his tax preparer. Upon learning this, Taxpayer A
immediately went to Credit Union E and re-established a home equity loan. On
May 8, 2013, when funds were available, Taxpayer A deposited Amount D into
IRA X.

Based upon the above facts and representations, you request a ruling that the
Internal Revenue Service (Service) waive the 60-day rollover requirement
contained in section 408(d)(3) of the Code with respect to the distribution of
Amount D.

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 or good
conscience, including casualty, disaster, or other events beyond the reasonable
control of the individual subject to such requirement. Only distributions that occur
after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of
the Code.

Rev. Proc. 2003-16, 2003-4 |.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, 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 his assertion that his failure to accomplish a timely rollover was
due to the incorrect advice given him by Individual B.

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 with respect to such contribution, the contribution of
Amount D into IRA X on May 8, 2013, 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 408(a)(6) 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.

If you have any questions concerning this ruling, please contact xxxXxxXxXXXXXXXX,
at Xxxxxxxxxxxx. All correspondence should be addressed to SE:T:EP:RA:T3.

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted copy of letter ruling
Notice 437