retirement

Waive 60-day IRA rollover requirement?

Judy O'ConnorDear Tax Talk,
We purchased a new home this summer for $510,000 and paid for part of it ($200,000) using my SEP IRA money. We did not do this until we had sold our previous home for $700,000, which took longer to close. For whatever reason, I miscounted the 60-day rollover window. Dumb, I know. As soon as I realized it, (about 80 days) I put the money back in the IRA. So I was about 20 days late in getting the money back (and my brokerage let me put it back in as a rollover repayment). I'm guessing that the IRS is initially going to want to tax the full $200,000. Do you think that they would have any leniency on a dumb mistake like that? I didn't intend to blow the 60-day IRA rollover requirement.
-- Richard

Dear Richard,
Using your IRA as a short-term solution when you bought your home was a brilliant idea. However, as you now know, it was only a 60-day solution and then you were supposed to put the money in a rollover account.

I am going to give you some information that may help you in this situation. First of all, generally you must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or employer's plan. I checked with my broker who works at a large investment firm regarding your broker letting you put the money back in as a rollover repayment and, according to him, no documentation is required on the part of the broker to prove a rollover has occurred within the 60-day time frame. Further, when a taxpayer files a tax return listing a withdrawal and an offsetting deposit to a rollover account, he is in essence attesting to its conformity to the 60-day rule. So this means it was up to you when you opened the account and not the broker to determine if this was allowable for you.

So what now? The IRS may waive the 60-day requirement where the "failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster or other event beyond your reasonable control." There is an automatic waiver, but only if certain requirements are met. And you are not going to qualify, as the first requirement is that the financial institution had received the funds within the 60 days. Since you do not qualify for an automatic waiver, you can apply to the IRS for a waiver of the 60-day IRA rollover requirement. You can submit a request for a letter ruling under the appropriate IRS revenue procedure which is usually published in the first Internal Revenue Bulletin of the year. I checked online and it has been published under Internal Revenue Bulletin 2014-1.

The IRS certainly does not make this easy, but you can give it your best shot and see if you qualify. Be forewarned that the IRS does not consider ignorance of the law or forgetfulness to be a reasonable cause. Good luck!

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