In two recent responses to requests regarding individual retirement account (IRA) distribution rollover requirement, the IRS declined both requests for waiver of section 408(d)(3) 60-day rollover requirement for a distribution from IRA.
In the first request, the individual taxpayer closed her IRA account with one financial institution and had her distribution from this IRA account deposited into another financial institution, considering to keep all of her Certificate of Deposit (CDs) with on financial institution. The latter institution handled her transferred funds, set up a non-IRA account and invested those funds in a 36-month CD in the name of the individual taxpayer. Later on, the taxpayer changed such account into a joint account with her daughter.
The IRS ruled that although the taxpayer was not aware of the fact that the funds were in a non-IRA account and she didn’t take any distribution from it, she failed to present sufficient evidence to build the error by the second financial institution. The statements from bank received by the taxpayer did not support the latter account to be an IRA. Additionally, since an IRA is solely for the benefit of one individual or his/her beneficiaries, the joint account held by the taxpayer together with her daughter was inconsistent with the purpose of an IRA. Thus, pursuant to section 408(d)(3)(l) which states “. . . the Secretary may waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) of the Code where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.”, the IRS denied such waiver request.
In the second request, the taxpayer maintained two separate IRAs at two financial institutions while she also maintained a trust account with the second financial institution. When the individual decided to rollover certain amount from the first IRA to the second IRA with the other institution, the financial institution transferred such amount into the trust account instead. At the time she found out the error, the fund in the trust account was not sufficient to make up for the error, so she transferred a lesser amount back to the second IRA
The IRS accordingly ruled the evidence failed to show that the different amount between the two transfers was not used for personal use, and the IRS thus denied such request for waiver for this fund. The IRS also ruled that the amount the taxpayer transferred back to the second IRA should be granted the waiver of 60-day rollover distribution requirement due to a clear error by the second financial institution.
Posted by Jiaqi Wang, Associate Editor, Wealth Strategies Journal.