IRS: Personal Expenses Not Proper Use of Rollover Assets

>In a private letter ruling, the agency denied the taxpayer’s request after the individual used assets from their IRA to pay living expenses and make tuition payments during a period of unemployment.   This, the IRS determined, amounted to a short-term interest free loan, according to a CCH report.

The IRS said using a premature distribution from a retirement account in such a manner was not consistent with the intent of Congress to allow portability between eligible plans. Thus, failure to waive the 60-day rollover requirement would not be against equity or good conscience, the IRS concluded.

Since the waiver request was denied, the taxpayer must now report the amount of the distribution as gross income on their tax return for the year of receipt, CCH said.

In other circumstances however, the IRS has granted waivers to the 60-day, situations that include casualty, disaster, or other events beyond the reasonable control of the individual.   As a rough guideline, when determining the merits of a waiver requests, the IRS considers fact and circumstances including errors committed by a financial institution, inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error, the use of the amount distributed, and the time elapsed since the distribution occurred, the CCH report said.