IRS Hangs Tough On IRA 60 Day Rollover Rule

We’ve reported, many times, about various situations in which beleaguered taxpayers have been unable to meet the requisite 60 day IRA rollover rule (to avoid treating the dough coming out of the IRA in the first instance to be taxable), and IRS has bent over – showing its “kinder and gentler” side and not slapping the taxpayer with penalties.  Most of these cases have fact patterns indicating the delinquency was not the taxpayer’s fault, but often times that of the IRA custodian because of that guy’s administrative delays.

But in a recent private letter ruling, IRS refused to waive the 60 day rollover requirement for a taxpayer whose attempt to use an IRA distribution to buy an interest in a partnership failed because the IRA custodian couldn’t hold the interest – a mistake that the taxpayer did not learn of for almost a year.  In response to the taxpayer’s plea that the timeliness failure was due to his receipt of incorrect advice, IRS hung tough on the notion that the failure was in fact due to his decision to use IRA proceeds to fund a business venture.

IRS will consider several factors in determining whether to waive the 60 day rollover requirement, including time elapsed since the distribution, inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, postal error, errors committed by a financial institutions, etc.

In this case, the taxpayer’s financial advisor prepared the paperwork for the taxpayer to sign, and on November 21, 2012, the custodian issued a check payable to the partnership.  The taxpayer intended that his IRA purchase the shares, and that they be held by the custodian.

But as it turned out, due to some technicality in the partnership agreement, the custodian was eventually unable to hold the investment on behalf of the IRA.  The taxpayer believed that the financial advisor should have prepared paperwork to transfer the amount to a financial institution that could have held the partnership interest on behalf of the IRA.  The problem was not discovered until October of 2013 – obviously well beyond the 60 day rollover period.

Right or wrong, IRS conclusion, here, was that taxpayer’s failure to complete a timely rollover wasn’t due to any of the factors described above which have been held in the past to constitute valid excuses, but instead was due to his choice to use the IRA proceeds to fund a business venture.

Result:  taxpayer is forced to include the distribution in his taxable income for 2012.

And did you hear the latest from Hillary’s campaign re her tax proposals?  $250 billion in direct “investment” over the next five years.  Plus an additional $25 billion to fund a “national infrastructure bank.”  None of this dough comes from the “middle class,” of course, whose taxes Hillary would “cut.”  Hillary wants to give those folk “a raise,” while she hits the top 3% of earners to pay for all of this largesse.

Heard that one before?  How much is enough?

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.

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