In PLR 201221036
, the Internal Revenue Service addressed whether an attempted IRA rollover was a distribution since more than 60 days passed between the distribution and deposit into the new account. The IRS granted a waiver to a Taxpayer who withdrew funds from his IRA to rollover to an account with a better interest rate, only to become ill before completing the transfer.
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Taxpayer made a distribution from his IRA to rollover the funds to an account with a better interest rate. Before he could redeposit the funds, the taxpayers became ill. He was hospitalized for surgery, during which a more serious infection was discovered requiring more extensive treatment. His recovery impaired both his physical and mental condition.
Whether “failure to waive [the 60-day requirement] would be against equity and good conscience, including casualty, disaster, or other events beyond the reasonable control of the [IRA] owner.”
The IRS waived the 60-day requirement.
Normally, funds withdrawn from an IRA are included in gross income – thus subject to income tax. § 408(d)(1)(i). If the withdrawal is paid into a new IRA for the benefit of the same individual within 60 days the transaction is treated as a rollover not subject to income tax. § 408(d)(3)(A)(i). However, the secretary may waive the 60-day requirement “where the failure to waive [the 60-day requirement] would be against equity and good conscience, including casualty, disaster, or other events beyond the reasonable control of the [IRA] owner.” PLR 201130014
(citing § 408(d)(3)(I)).
The Service considers four conditions, in addition to “all relevant facts and circumstances,” in determining whether to grant a waiver: (1) financial institution error; (2) death, disability, hospitalization, incarceration, interference from a foreign country, or a postal error; (3) use of the distribution; (4) time lapsed from distribution. PLR 2011
30014 (citing Rev. Proc. 2003-16, 2003-4 I.R.B. 359).
The second and third factors weighted in favor of our client. The favorable ruling was not surprising given that the IRS consistently grants a waiver when this common problem occurs. However, it’s important to remember the IRS will not consider past rulings as president and the statues and regulations give the Service considerable discretion in deciding whether to grant a waiver. Moreover, the consequences of the waiver not being granted are devastating for the client. So while this ruling gives us little insight regarding the Service’s attitude, it was still an accomplishment for us and the client.
I hope this helps you help others.
Robert S. Keebler, CPA, MST, AEP
Cites: PLR 201221036