Adviser mishandling justified a waiver of the IRA rollover deadline

Plain-English summary

An IRA owner consulted an attorney about using a self-directed IRA to buy real estate. Following the attorney's instructions, she had an IRA distribution wired to the attorney's title-company account and believed a trust-company account would hold the property for her IRA. The account was not actually an IRA and held no assets, and the attorney was later arrested on theft charges while the title company entered liquidation. The taxpayer also had been abroad caring for her mother and represented that the distributed amount was used only in the attempted IRA arrangement. The IRS found that the missed 60-day deadline resulted from the adviser's mishandling and granted a waiver. The taxpayer received 60 days from the ruling to contribute cash not exceeding the distributed amount to an IRA, provided all other rollover requirements were met.

Ruling snapshot

• Question: Should the IRS waive the 60-day IRA rollover deadline after the taxpayer's adviser mishandled the attempted self-directed IRA transaction?
• Outcome: approved
• Key authorities: IRC §§ 408(d)(3), 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

201737016

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 21 2017

SE:T:EP:RA:T1

Uniform Issue List: 408.03-00

Legend
Taxpayer A =

IRA B =

Account C =
Financial Institution D =
Financial Institution E =
Trust Company F =
Attorney G =
Title Company H =
Amount 1 =

Date 1 =

Dear :

This is in response to your request dated April 12, 2017, 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”).


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The following facts and representations have been submitted under penalty of
perjury in support of the ruling requested.

Taxpayer A represents that she received a distribution equal to Amount 1 from IRA
B, which was maintained by Financial Institution D. Taxpayer A asserts that her
failure to accomplish a rollover within the 60-day period prescribed by 408(d)(3)(A)
of the Code was due to mishandling of the transaction by her tax advisor, Tax
Attorney G.

In 20__, Taxpayer A contacted Attorney G, an attorney who specialized in real
estate and tax law, for advice regarding the possibility of investing the assets of
IRA B in real estate. Attorney G represented to Taxpayer A that she would help
Taxpayer A establish a self-directed IRA to acquire the real estate on behalf of
Taxpayer A. Attorney G advised Taxpayer A that the IRA would be established
with Trust Company F, which would use Amount 1 to purchase the real estate on
behalf of Taxpayer A.

Pursuant to Attorney G’s instructions, on September 3, 20__, Amount 1 was wired
from IRA B to an account with Financial Institution E that was owned by Attorney
G’s title company, Title Company H. Attorney G established an account, Account
C, with Trust Company F. On September 11, 20__, Attorney G assisted Taxpayer
A in purchasing the real estate through Trust Company F. The settlement papers
listed the purchaser of the properties as “Trust Company F as Custodian” for the
benefit of Taxpayer A. Based on discussions with her attorney, Taxpayer A
believed that Account C was a self-directed IRA account. However, Account C
was not an IRA account, and Amount 1 had not been deposited into Account C for
purposes of purchasing the properties.

On October 10, 20__, Taxpayer A flew out of the country to care for her elderly
mother who needed full time care. On February 9, 20__, Taxpayer A’s mother
passed away. Given Taxpayer A’s preoccupation with caring for her mother and
her reliance on Attorney G, Taxpayer A was unaware that there was any issue
until January 11, 20__, when Trust Company F indicated that Account C did not
hold any assets. During the first week of March of 20__, Taxpayer A learned that
Attorney G had been arrested and charged with multiple felonies for theft of trust
assets. On Date 1, Attorney G’s Title Company H was found to be insolvent, and
became the subject of state liquidation proceedings.

Taxpayer A represents that Amount 1 was only used for the attempted purpose of
establishing a self-directed IRA with the aid and counsel of Attorney G, and has
not been used for any other purpose.

Based on the above facts and representations, Taxpayer A requests a ruling that
the Service waive the 60-day rollover requirement under section 408(d)(3) of the
Code as to the distribution of Amount 1 from IRA B.


3 201737016

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


4 201737016

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 are consistent with Taxpayer A’s
assertion that the failure to accomplish a rollover within the 60-day period
prescribed by 408(d)(3)(A) of the Code was due to mishandling of the transaction
by her tax and real estate advisor, Attorney G.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service waives the 60-
day rollover requirement with respect to the distribution of cash equal to Amount 1.
Provided all other requirements of section 408(d)(3), except the 60-day
requirement, will be met with respect to the contribution of Amount 1 to an IRA,
such contribution will be considered a rollover contribution within the meaning of
section 408(d)(3). Taxpayer A has 60 days from the issuance of this letter ruling to
complete a rollover of an amount, in cash, that is not in excess of Amount 1 into an
IRA.

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.


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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: