A taxpayer was not entitled to a waiver of the Code Sec. 408(d)(3) requirement that an IRA rollover be made within 60 days. The taxpayer’s explanation—that she had believed the 60-day period applied to business days rather than calendar days—failed to persuade the IRS to grant her a waiver.
Rollovers: Tax Code and guidance
An individual may withdraw all or part of the assets of one traditional IRA and exclude the withdrawal from income if the individual either transfers it to another traditional IRA or returns it to the same IRA. This is commonly called a “rollover.” The rollover or return must generally be accomplished within 60 days after the withdrawal. It is not necessary that the entire amount withdrawn be transferred, but only the amount that is transferred during the 60-day period will be excludable from income.
Generally an amount paid or distributed out of an IRA is includible in a taxpayer’s gross income unless it falls under an exception. Code Sec. 408(d)(3)provides one such exception for an amount that qualifies as a tax-free rollover from an IRA into an IRA or other qualified retirement account made within 60 calendar days.
Code Sec. 408(d)(3)(I) authorizes the IRS to waive the 60-day requirement where the facts and circumstances of a case indicate that failure to waive the requirement would be inequitable. In other words, the IRS has the authority to grant a waiver of the 60-day rule in situations involving equity, good conscience, or for situations that were beyond the control of the individual. In exercise of that authority, Rev. Proc. 2003-16 enumerates factors that the IRS will consider when making this determination. These include:
- Errors by a financial institution;
- Death, disability, hospitalization, incarceration, restrictions imposed by a foreign nation, or postal error;
- The use of the amount distributed; and
- The time elapsed since the distribution occurred.
On August 2 the taxpayer took a distribution from her IRA to pay off the mortgage on her home with the intention of returning the funds to her IRA within 60 business days. The 60-day period for making a rollover ended on October 1. After the cut-off date, but within the first two weeks of October, the taxpayer made two deposits into her IRA. The total amount redeposited was less than the amount of the August distribution.
The IRS denied the taxpayer’s request for a waiver of the 60-day requirement. The IRS noted that the taxpayer had not cited any of the factors enumerated in Rev. Proc. 2003-16 to explain her reason for failing to accomplish a rollover within the requisite period.