Spouses receive different IRA rollover waiver results

Plain-English summary

A married couple withdrew funds from separate SEP-IRAs and deposited them into ordinary bank accounts while believing the new accounts were tax deferred. One spouse used part of the funds for living expenses before depositing the remainder in an IRA, while the other spouse left the full distribution untouched and later deposited it in an IRA. The IRS denied the first spouse's request for a 60-day rollover waiver because the use of the account for living expenses did not establish an intent to roll over the distribution. It granted the second spouse's waiver because the evidence supported an intent to roll over the funds, reliance on the other spouse for financial matters, and no other use of the distribution.

Ruling snapshot

• Question: Would the IRS waive the 60-day IRA rollover deadline for each spouse's SEP-IRA distribution?
• Outcome: Mixed, the first spouse's waiver was denied and the second spouse's waiver was granted.
• Key authorities: IRC §§ 72 and 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

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

DEC 21 2015

Uniform Issue List: 408.03-00

Legend
Taxpayer A =

Taxpayer B =

SEP-IRA C =

SEP-IRA D =

Account E =

Account F =

IRA G =

IRA H =

Financial Institution I =

Financial Institution J =

Amount 1 =



Amount 2 =
Amount 3 =
Dear                 :

This is in response to your request dated May 29, 2015, as supplemented by
correspondence dated July 21, 2015, 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 penalties of
perjury in support of the ruling requested.

Taxpayer A represents that on May 7, 2014, he received a distribution equal to
Amount 1 from SEP-IRA C, which was maintained by Financial Institution I.
Taxpayer A asserts that his failure to accomplish a rollover within the 60-day
period prescribed by section 408(d)(3)(A) of the Code was due to his belief that
the distribution was deposited into a tax deferred account and his lack of
knowledge of the 60-day rollover requirement.

Taxpayer B, Taxpayer A’s spouse, represents that on May 7, 2014, she received a
distribution equal to Amount 2 from SEP-IRA D, which was maintained by
Financial Institution I. Taxpayer B asserts that her failure to accomplish a rollover
within the 60-day period prescribed by section 408(d)(3)(A) of the Code was due
to reliance on her spouse, Taxpayer A, in financial matters.

Taxpayer A and Taxpayer B wanted to transfer their SEP-IRAs to FDIC insured
accounts that they believed would better protect their retirement assets. On May
7, 2014, Taxpayer A withdrew Amount 1 from SEP-IRA C, which was wired to
Account E, a non-IRA account maintained by Financial Institution J. On the same
date, Taxpayer B withdrew Amount 2 from SEP-IRA D, which was wired to
Account F, a non-IRA account maintained by Financial Institution J.

From May of 2014 through March of 2015, Taxpayer A withdrew amounts from
Account E for Taxpayer A’s and Taxpayer B’s living expenses, which left Amount 3
in Account E. Taxpayer B did not make any withdrawals from Account F.

While preparing their federal Income Tax Return, Taxpayer A and Taxpayer
B discovered that Amount 1 and Amount 2 had been deposited into non-IRA
accounts. On April 1, 2015, Taxpayer A transferred Amount 3, i.e., that portion of
Amount 1 that Taxpayer A did not need for living expenses, to IRA G. On April 1,
2015, Taxpayer B transferred Amount 2 to IRA H. IRA G and IRA H were
maintained by Financial Institution J. Taxpayer A and Taxpayer B paid the taxes
owed on the portion of Amount 1 that was withdrawn in 2014 to pay for living
expenses.



Based on the above facts and representations, you request the following rulings:

(1) Taxpayer A requests a waiver of the 60-day rollover requirement with respect
to the May 1, 2014 distribution of Amount 3 from SEP-IRA C, and

(2) Taxpayer B requests a waiver of the 60-day rollover requirement with respect
to the May 1, 2014 distribution of Amount 2 from SEP-IRA D.

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).

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.

Regarding ruling request number (1), Taxpayer A has not established that he
intended to roll over the distribution from SEP-IRA C to another IRA as he used
Amount 1 in Account E as a checking account for living expenses. 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. No portion of Amount 1 can be rolled over and must be included in
Taxpayer A’s and Taxpayer B’s gross income for the taxable year. Thus, the
contribution of Amount 3 into IRA G on April 1, 2015, will not be considered a valid
rollover under section 408(d)(3)(I).

Regarding ruling request number (2), the information and documentation
submitted by Taxpayer B support her assertion that she intended to roll over
Amount 2 into an IRA, relied on her spouse in financial matters, and Amount 2 was
not used for any other purpose. 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. Provided all other requirements of section 408(d)(3),
except the 60-day requirement, were met with respect to the contribution of


Amount 2 to IRA H, Amount 2 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 408(a)(6) 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
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

Cc: