IRS is authorized by statute to waive the 60-day period for rolling
over retirement plan distributions into an individual retirement
account (IRA) or other eligible retirement plan. The waiver
allows individuals who fail to meet the 60-day rollover deadline to
avoid current taxation if the failure is the result of casualty,
disaster or other events beyond the individual’s control,
including error or neglect on the part of a financial institution.
An automatic waiver applies if a financial institution receives
rollover funds from an individual prior to the expiration of the
60-day rollover period, the individual complies with all of the
financial institution’s required procedures and the funds are not
deposited into an eligible retirement plan on time. To obtain
a waiver other than the automatic waiver, an IRS private letter
ruling (PLR) is required. Revenue Procedure 2003-16 provides
PLR’s issued by the IRS pursuant to Revenue Procedure 2003-16
which grant waivers of the 60-day rollover period suggest the
circumstances that are viewed as beyond the taxpayer’s reasonable
control. For example, the IRS has ruled in favor of taxpayers
in the following circumstances:
an investment manager misappropriated funds from individuals’
IRAs, and the individuals did not discover the withdrawals until
after the 60-day period had expired. PLR 200327064.
a taxpayer directed a bank to transfer funds from a brokerage
account to his checking account, but the bank transferred the funds
from his IRA instead, and the taxpayer did not discover it until
after the 60-day period had expired. PLR 200401020.
a taxpayer failed to roll over a check received from an IRA because
the taxpayer was dealing with the taxpayer’s spouse’s critical
illness. PLR 200406052.
the IRS has declined to grant the requested waiver when taxpayers do
not demonstrate an intent to undertake a rollover transaction at the
time of the original distribution. Accordingly, rollover
relief has been denied in the following circumstances:
an IRA owner took a series of distributions to pay personal expenses
during a period of unemployment, and then sought to redeposit the
amounts after obtaining employment. PLR 200417033.
the spouse of a deceased IRA owner took a distribution and deposited
it in a savings account, and then requested a waiver after
discovering the tax consequences. PLR 200421003.
the husband of a hospitalized IRA owner withdrew IRA funds in order
to "spend down" the wife’s assets to qualify for Medicaid, and
then tried to redeposit the funds in the wife’s IRA after her
death twelve days later. PLR 200547024.
The PLRs issued by the IRS make is clear that rollover relief is
available whenever a financial institution fails to properly carry
out customer instructions relating to an existing IRA or other
eligible retirement plan. For example, rollover relief can be
used to avoid current taxation when a financial institution
inadvertently puts IRA funds in a taxable account while implementing
a customer’s investment direction. For any unintended IRA
distributions after December 31, 2001, consider rollover relief
under Rev. Proc. 2003-16.
January 23, 2006
Golan Christie Taglia LLP
70 West Madison St.
Chicago, Illinois 60602