IRA rollover waiver denied for short-term business loan

Plain-English summary

An IRA owner withdrew funds so her spouse could make a business investment, then attempted to return the money ten days after the 60-day rollover deadline. She attributed the delay to concern about an ill family member abroad and reliance on her spouse. The IRS denied a waiver because the distribution had been used as a short-term, interest-free business loan. That use was inconsistent with Congress’s purpose of allowing retirement savings to move between eligible plans. The distribution could not be rolled back into an IRA and had to be included in the taxpayer’s gross income for 2015.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day IRA rollover deadline after using the distribution temporarily for a business investment?
• Outcome: Denied
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201618016

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

FEB 01 2016

SE:T:EP:RA:T1

COMMISSIONER
TAX EXEMPT AND
GOVERNMENT ENTITIES

Uniform Issue List: 408.03-00

Legend
Taxpayer A =

IRA B =

Financial Institution C =

Amount 1 =

Dear

This is in response to your request received on August 18, 2015, as supplemented
by correspondence received October 28, 2015, November 3, 2015, and December
9, 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 penalty of
perjury in support of the ruling requested.

Taxpayer A represents that on May 13, 2015, she received a distribution equal to
Amount 1 from IRA B, an individual retirement account (“IRA”) described in section
408(a) of the Code, which was maintained by Financial Institution C. Taxpayer A
asserts that her failure to accomplish a rollover within the 60-day period prescribed
by section 408(d)(3)(A) was due to preoccupation with health issues concerning a
family member and reliance on her spouse.

On May 13, 2015, Taxpayer A requested a distribution equal to Amount 1 from
IRA B to enable her spouse to make a business investment. On May 28, 2015,

Taxpayer A traveled to a foreign country to visit a family member who was not
doing well. Taxpayer A returned to the United States on June 28, 2015. On July
23, 2015, when Amount 1 became available, Taxpayer A attempted to repay
Amount 1 back into IRA B. However, Financial Institution C advised her that
having missed the 60-day rollover period by ten days, absent a waiver from the
Service, she could not contribute Amount 1 to IRA B.

Based on the above facts and representations, Taxpayer A requests a waiver of
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).

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 information and documentation submitted by Taxpayer A indicate that the
distribution of Amount 1 from IRA B was used as a short-term, interest-free loan to
make a business investment. The Committee Report describing legislative intent
indicates that Congress enacted the rollover provisions to allow portability between
eligible plans including IRAs. Using a distribution as a short-term loan to pursue
business investments is not consistent with the intent of Congress to allow
portability between eligible plans. Thus, the information presented does not
demonstrate circumstances that would justify a waiver of the 60-day rollover
period pursuant to section 408(d)(3)(I) of the Code and Rev. Proc. 2003-16.

Accordingly, the Service hereby declines to waive the 60-day rollover requirement
with respect to the distribution of Amount 1 from IRA B and thus Amount 1 cannot
be rolled over into an IRA. Amount 1 must be included in Taxpayer A’s gross
income for the 2015 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.

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