In a private letter ruling, the IRS has refused to waive the requirement to roll over IRA distributions within 60 days for an individual whose bank failed to advise her of the deadline.
The IRS determined that the taxpayer did not qualify for relief because she did not show that the bank had a duty to inform her of the 60-day requirement. The overall facts also indicated that the ability to redeposit the amount was within her reasonable control during the time period in question (PLR201339002).
Normally, there is no immediate tax if distributions from an IRA are rolled over to an IRA or other eligible retirement plan. For the rollover to be tax-free, the amount distributed from the IRA generally must be re-contributed to the IRA or other eligible retirement plan no later than 60 days after the date that the taxpayer received the withdrawal from the IRA.
A distribution rolled over after the 60-day period generally will be taxed and may be subject to a 10 percent premature withdrawal penalty tax. Only one tax-free IRA-to-IRA rollover per IRA account can be made within a one-year period.
The IRS may waive the 60-day rule if an individual suffers a casualty, disaster or other event beyond that person’s reasonable control and if not waiving the 60-day rule would be against equity or good conscience (i.e., hardship waiver).
The IRS will consider several factors in determining whether to waive the 60-day rollover requirement. These factors may include, for example, the time elapsed since the distribution; the inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; and errors committed by a financial institution.
In the new private ruling, an individual withdrew money from three IRAs maintained at a bank (Bank A) with the intent of depositing these funds at a later time into another IRA that would yield a better rate of return. The individual opened a rollover IRA at Bank B 68 days later but was informed that the intended deposit could not be accepted as a rollover contribution because the 60-day period had expired.
The IRS declined to waive the 60-day requirement. Although one of the factors on which relief can be based is whether errors were committed by the relevant financial institutions, the taxpayer did not demonstrate that Bank A had a duty to inform her of the 60-day rollover requirement.
Instead, the IRS found that the ability to timely redeposit the money into a rollover IRA was within the reasonable control of the taxpayer. Although the bank did not tell her that she needed to redeposit the funds within 60 days, she had the ability to do so.
When it comes to the tax law, not knowing about the rules generally is an insufficient excuse for not complying with them.