Taxpayer-friendly guidance on the 60-day IRA rollover waiver.

• Author: Tillinger, Janet W.
• Position: Individual retirement account

Since the genesis of IRAs, amounts received from an IRA or qualified plan could be rolled over tax free, under Sec. 408(d)(3)(A)(i), if the rollover was made within 60 days of the date of the receipt of the distribution. In a steady stream of cases and letter rulings, the IRS has consistently argued that it does not have the authority to waive the 60-day requirement, except--as provided in Secs. 7508(a) and 7508A(a)--during military service in a combat zone or on the occurrence of a Presidentially declared disaster. The Service and the courts have relentlessly enforced the 60-day rule, even when a taxpayer clearly intended to complete the rollover and acted in good faith, and the failure to complete it was entirely beyond his or her control. In only one case, the Tax Court allowed a completed rollover when a financial institution reported incorrectly, due to a bookkeeping error; see Wood, 93 TC 114 (1989).

Congressional Relief

In the Economic Growth and Tax Relief Reconciliation Act of 2001, Congress provided relief, by adding a hardship exception in Sec. 408(d)(3)(1). According to the conference agreement (H. Conf. Rep't No. 107-16), this new provision would allow the IRS to waive the 60-day rollover period if failing to do so would be against equity or good conscience, including cases of casualty, disaster or other events beyond a taxpayer's reasonable control. For example, the Secretary is empowered to issue guidance providing objective standards for a waiver of the 60-day rollover period for (1) a period during which the participant had received, but not yet cashed, a check; (2) financial institution errors; or (3) situations in which the taxpayer was unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or a postal error.

IRS Guidance

The Service issued Rev. Proc. 2003-16, which explains (1) how taxpayers can apply for a waiver of the 60-day rollover period for IRAs and pension plan distributions and (2) when a situation merits an automatic waiver. Under the procedure, the taxpayer applies for a hardship exception waiver via a letter ruling, as outlined in Rev. Proc. 2003-4, and pays a user fee ($95 for 2004), as described in Rev. Proc. 2004-8.

In determining whether to grant a waiver, the Service, closely following the conference report language, states that it will consider all relevant facts and circumstances. In addition, it will assess how a taxpayer...