Compliance July 7, 2003

IRS Waives Rollover Requirement Due to Misappropriation of IRA Funds

July 7, 2003 (PLANSPONSOR.com) - The Internal Revenue Service (IRS) has issued a private letter ruling allowing participants in an IRA to exceed the 60-day rollover requirement in a case where correspondence was directed to the wrong address to conceal misappropriations.
Reported by

>The IRS found the participants did not become aware of the misappropriation of funds until late 2002, when they did not receive account statements for the IRAs. After investigating the matter with the IRA custodian, the participants discovered the account statements were being misdirected to another address, which was the address provided to the custodian to conceal a misappropriation of funds, according to a news release.

>Therefore, the participants were unaware of the distributions until after the 60-day rollover period had expired.   The participants had proposed to contribute an unspecified among to one or more new IRAs.

>The IRS turned to Revenue Procedure 2003-16 (See  IRS offers guidelines for waivers on 60-day rollover period ), that provides guidelines to consider in determining whether to grant a waiver of the 60-day rollover requirement, 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
  • the time elapsed since the distribution occurred.

>In this case, the participants clearly demonstrated an undue hardship that they said led to the inability to reasonably satisfy the requirement that the assets be deposited in an IRA within 60 days of the distribution, the IRS said. The IRS said the failure to waive the 60-day requirement would be “against equity or good conscience.”

Therefore, the participants were given 30 extra days to contribute the unspecified amount to the new IRA, provided all other requirements of the applicable tax code section, except the 60-day requirement, are met with respect to such contributions.

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