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Rollover Limit Precludes Waiver of 60-Day Requirement for Taxpayer's Second IRA Distribution

(Parker Tax Publishing December 2016)

The IRS ruled that a taxpayer's cognitive impairment prevented him from rolling over two distributions from his IRA and granted his request for a waiver of the 60-day rollover requirement for the first distribution. However, the IRS noted that Code Sec. 408(d)(3)(B) imposes a one-per-year limit on IRA rollovers, and ruled that the second distribution could not be rolled over. PLR 201647014.

Under the facts in PLR 201647014, a taxpayer received two distributions from his IRA. The first distribution occurred on March 10, 2015, and the taxpayer deposited the amount into a non-IRA savings account. On March 30, 2015, the taxpayer withdrew additional amounts from the IRA, which he also deposited into a non-IRA account. The withdrawn amounts were not used for any other purpose.

Due to memory loss and confusion, the taxpayer did not understand the implications of withdrawing these amounts and depositing them into a non-IRA account. The taxpayer's symptoms of cognitive impairment began in 2010 and became more prominent beginning in January of 2015. The taxpayer submitted medical documentation supporting his impairment to the IRS.

Under Code Sec. 408(d)(3), a taxpayer can roll over, tax free, a distribution from a traditional IRA into the same or another traditional IRA, or into an eligible retirement plan that accepts rollovers. Generally, the individual must make the rollover contribution by the 60th day after the day the individual receives the distribution from the IRA. The IRS can waive the 60-day requirement where the failure to do so would be against equity or good conscience.

Under Code Sec. 408(d)(3)(B), an individual can make only one tax-free rollover from a traditional IRA to another traditional IRA in any one-year period. The one-year waiting period begins on the date the individual receives the first IRA distribution.

The taxpayer represented that his failure to accomplish a rollover of the amounts withdrawn from his IRA within the 60-day period under Code Sec. 408 was due to his cognitive impairment and requested that the IRS waive the rollover requirement.

Regarding the distribution of the first amount, the IRS determined that the information and documentation submitted were consistent with the taxpayer's assertion that his failure to accomplish a rollover of that amount within the 60-day period was due to cognitive impairment, and granted the taxpayer's rollover request.

However, the IRS stated, because Code Sec. 408(d)(3)(B) imposes a once-per-year limitation on IRA to IRA rollovers, the second amount could not be rolled over into an IRA tax-free.

For a discussion of rollovers of distributions from traditional IRAs, see Parker Tax ¶134,540.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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