A rollover that took more than 60 days to complete due to a bookkeeping error was considered timely
The Tax Court held that a taxpayer's distribution from her individual retirement account (IRA) redeposited 62 days later into the IRA was a nontaxable rollover distribution. According to the court, the untimely deposit was due to a bookkeeping error by her financial adviser's company, and, furthermore, the taxpayer qualified for a hardship waiver under Sec. 408(d)(3)(I).
Facts: On June 25,2014, Nancy Burack received a $524,982 distribution from her IRA that she held with Capital Guardian LLC/Pershing LLC. She had a financial adviser at Capital Guardian, while Pershing was the custodian of the account. She used the proceeds to purchase a new home. In August 2014 she sold her old home and received a check for $524,981 made out to "Pershing FBO Nancy J. Burack" that was to be rolled over into her IRA. Based on the advice of her financial adviser at Capital Guardian, she sent the check to Capital Guardian, which received it 58 days after her initial IRA withdrawal. The amount was deposited into her IRA by Pershing 62 days after her initial withdrawal.
In 2017, the IRS sent Burack a deficiency notice for $214,333 plus an accuracy-related penalty of $42,867, on the basis that her IRA rollover was not timely. She petitioned the Tax Court for relief.
Issues: Burack argued that the rollover was not recorded as timely because of a bookkeeping error by Capital Guardian and she was entitled to a hardship waiver under Sec. 408(d) (3)(I). Generally, amounts distributed to a taxpayer from his or her traditional IRA are included in gross income; however, the taxpayer may exclude them if the entire amount is rolled over into a qualified IRA no later than the 60th day after the receipt of the distribution. The Tax Court, in Wood, 93 T.C. 114 (1989), held that a transfer qualified for rollover treatment where the account custodian made a bookkeeping error resulting in the failure to record the transfer within the 60-day period.
If a taxpayer fails to meet the 60-day deadline, the taxpayer can request a waiver of the 60-day rollover...