Cancelled investment does not justify late IRA rollover

Plain-English summary

An IRA owner withdrew funds from a self-directed IRA intending to place them in another IRA that would finance a private investment. Litigation delayed and then cancelled the investment, and the owner returned the money to the original IRA after the 60-day period had expired. The IRS found that the failed investment did not fall within the circumstances identified for waiver relief, such as financial-institution error, death, hospitalization, postal error, incarceration, or disability. It denied the waiver and ruled that the distribution and its earnings were includible in the owner's gross income for the distribution year.

Ruling snapshot

• Question: Could cancellation of a planned private investment justify a waiver of the 60-day IRA rollover deadline?
• Outcome: Denied
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
201547009

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

AUG 26 2015

COMMISSIONER
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

Legend

Taxpayer A =
IRA B =

Company C =

Amount 1 =

Dear :

This is in response to your letter dated February 16, 2015, 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 penalties of perjury in support of the ruling requested.

Taxpayer A represents that on August 13, 2014, he received a distribution equal to Amount 1 from IRA B, an individual retirement account (“IRA”) described in section 408(a) of the Code. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3)(A) was due to the cancellation of a transaction relating to the intended rollover.

On August 13, 2014, Taxpayer A withdrew Amount 1 from IRA B, a self-directed IRA maintained through Company C. Taxpayer A intended to roll over Amount 1 into another IRA to fund a private investment transaction, which was scheduled to close by September 15, 2014. However, the investment transaction was delayed and subsequently cancelled in early November of 2014 due to litigation. On

201547009

November 11, 2014, after the 60-day rollover period had expired, Taxpayer A deposited Amount 1 back into IRA B.

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 1 from IRA B.

Section 408(a) of the Code defines an IRA to mean a trust created or organized in the United States, and requires that the trustee be a bank or an approved non- bank trustee.

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 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

(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).

201547009

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.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359, provides that the Service will issue a ruling waiving the 60-day rollover requirement in cases 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 taxpayer. 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 Service has the authority to waive the 60-day rollover requirement where the individual failed to complete a rollover to another IRA within the 60-day rollover period because of one of the factors enumerated in Rev. Proc. 2003-16, for example, errors committed by a financial institution, death, hospitalization, postal error, incarceration, and/or disability. In this instance, Taxpayer A has not demonstrated that the failure to complete a timely rollover of the distribution of Amount 1 from IRA B was due to any of the circumstances in Rev. Proc. 2003-16.

Therefore, pursuant to section 408(d)(3)(I) of the Code, Taxpayer A’s request that the Service waive the 60-day rollover requirement with respect to the distribution of Amount 1 is declined, and Amount 1 and any earnings thereon are therefore includible in Taxpayer A’s gross income for the 2014 taxable year.

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.

201547009

If you wish to inquire about this ruling, please contact at . Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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