Tax News

IRA Rollover Requirement Not Waived

Rollover Requirement Not Waived Where Taxpayer Used IRA Funds as Short-Term Loan

The IRS declined to waive the 60-day rollover requirement for a distribution a taxpayer took from her IRA. The taxpayer had used the funds to purchase her daughter’s home in order to avert its foreclosure and intended to sell her vacation home to replace the withdrawn amounts, but the sale was not completed until after the 60-day period. PLR 201625022.

Background

In PLR 201623003, a taxpayer’s daughter’s home was in foreclosure in early 2015. In April, the taxpayer and her spouse put their vacation home up for sale in order to raise funds to purchase their daughter’s home. On April 24, 2015, before the sale of the vacation home was completed, the taxpayer took a distribution from her IRA. She used the IRA proceeds to buy the daughter’s house in order to avert its foreclosure.

The taxpayer intended to redeposit the withdrawn amounts into her IRA within the 60-day rollover period, which ended on June 23, 2015. However, the sale of the vacation home was not completed until July 1, 2015, after the 60-period had expired. As a result, the taxpayer did not have sufficient funds during the 60-day period to complete the rollover. The taxpayer’s spouse was willing to take a distribution from his IRA to complete the rollover, but the taxpayer claimed a medical condition prevented this from occurring. Upon the receipt of the funds from the sale of her vacation home on July 1, 2015, the taxpayer attempted to complete the rollover but realized the rollover period had expired. The taxpayer requested that the IRS waive the 60-day rollover period in Code Sec. 408(d)(3) with respect to the distribution from her IRA.

Analysis

Under Code Sec. 408(d)(3), a taxpayer can roll over, tax free, a distribution from a traditional IRA into the same or another traditional IRA, or into an eligible retirement plan that accepts rollovers. Generally, the individual must make the rollover contribution by the 60th day after the day the individual receives the distribution from the IRA.

The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience. Rev. Proc. 2003-16 provides that in determining whether to grant a waiver, the IRS will consider multiple factors, including the taxpayer’s inability to complete a rollover due to the following causes:

(1) death;

(2) disability;

(3) hospitalization;

(4) incarceration;

(5) restrictions imposed by a foreign country; or

(6) postal error.

In the instant case, the IRS found that the taxpayer did not demonstrate how any of the factors in Rev. Proc. 2003-16 resulted in her failure to accomplish a timely rollover. The IRS noted that the taxpayer represented that her inability to complete a rollover was caused by a medical condition during the 60-day period. However, the IRS said, it was not convinced that the taxpayer’s medical condition prevented a timely rollover considering that she continued to work and travel during the relevant period. As a result, the IRS declined to waive the 60-day rollover requirement with respect to the distribution.

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