IRA rollovers after 60 days; the IRS can be lenient in certain circumstances.
A hardship exception enacted in 1991 (IRC section 408(d)(3)(I)) allows the IRS to waive the 60-day rollover period if failing to do so would be against equity or good conscience, as in cases of casualty, disaster or other events beyond a taxpayer's reasonable control. The IRS is empowered to issue guidance providing objective standards for waivers for periods during which IRA participants had received, but not yet cashed, their checks; financial institution errors; or situations in which taxpayers were unable to complete rollovers due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal errors.
In revenue procedure 2003-16, the IRS explained how taxpayers can apply for a waiver of the 60-day rollover period and when a situation merits an automatic waiver.
In determining whether to grant a waiver, the service considers all relevant facts and circumstances; how taxpayers used the amount distributed (for example, for payments made by check, whether they cashed the check); and the time elapsed after the distribution. Automatic approval is granted (and, thus, no application to the IRS is needed) when a valid rollover would have been completed but for a financial institution error. In any case the distribution must have occurred after 2001.
The service recently issued various letter rulings waiving the section 408(d)(3) 60-day rollover requirement and providing taxpayers with a fresh 60-day rollover period beginning on the letter ruling's date. In each case the taxpayer established that no other amount was distributed from the IRA within the one-year period after the original distribution, as required under section 408(d)(3)(B). The following rulings shed light on the circumstances that prompt an IRS waiver.
* Letter rulings 200401020, 200401023 and 200402028 (financial institution mistake).
* Letter ruling 200402029 (taxpayer's physical incapacity prevented compliance with rollover requirements).
* Letter rulings 200407025, 200406049 and 200406050 (taxpayer was hard of hearing, mentally disabled or recently widowed and suffering illness).
* Letter rulings 200406051 and 200405013 (account administrator error or failure to notify).
* Letter ruling 200407023 (bank's erroneous advice).
* Letter ruling 200406054 (inclement weather barred taxpayer from making rollover until after 60-day period).
Clearly, the IRS is liberally applying its authority to grant waivers under the hardship exception. CPAs have an opportunity to assist clients whose circumstances qualify.
For more information see the Tax Clinic, edited by Anthony Bakale, in the August 2004 issue of The Tax Adviser.
Notice to readers: Members of the AICPA tax section may subscribe to The Tax Adviser at a reduced price. Contact Judy Smith at 202-434-9270 for a subscription to the magazine or to become a member of the tax section.
Lesli S. Laffie, editor The Tax Adviser
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|Title Annotation:||from The Tax Adviser|
|Author:||Laffie, Lesli S.|
|Publication:||Journal of Accountancy|
|Date:||Aug 1, 2004|
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