IRS Issues Guidance on Waiver of 60-Day Rollover Requirement

In the past, there has been no exception to the rule that a taxpayer must complete the rollover of an eligible rollover distribution within 60 days in order to avoid current income taxation on the distribution. In Revenue Procedure 2003-16 the IRS sets forth procedures for taxpayers to apply to the Service for a waiver of the 60-day rollover requirement and provides for an automatic waiver of the 60-day rollover rule in certain circumstances. The revenue procedure is effective January 27, 2003, for distributions that are made after December 31, 2001.

If the financial institution receiving the rollover causes the failure the complete the rollover in 60 days, the taxpayer is entitled to an automatic waiver of the 60-day rollover rule and need not apply to the IRS for approval. Specifically, the automatic waiver is available if a financial institution receives funds on behalf of a taxpayer before the end of the 60-day rollover period and the taxpayer follows all of the procedures required by the financial institution for depositing funds into an eligible retirement plan within the 60-day period but, solely because of the financial institution’s error, the funds are not deposited into an eligible retirement plan within the 60-day rollover period. In addition, the automatic approval is only granted if (1) the funds are deposited into an eligible retirement plan within one year from the beginning of the 60-day rollover period, and (2) the rollover would have been a valid rollover if the financial institution had deposited the funds as instructed.

A taxpayer can apply for a waiver of the 60-day rollover rule by following the same procedure as is required to obtain a letter ruling from the IRS. The IRS will consider the facts and circumstances of the taxpayer’s failure to meet the 60-day rollover rule and will determine whether the failure to waive the 60-day rollover requirement would be against equity or good conscience, for example, as a result of casualty or disaster, or other events beyond the reasonable control of the taxpayer. In particular, the IRS will consider:

• whether the failure to complete the rollover was because of errors committed by the financial institution (other than the errors described in the preceding paragraph);
• whether the rollover was not completed because of death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error;
• whether the taxpayer used the amount distributed; and
• the period of time that has elapsed since the distribution occurred.

Finally, the ruling notes that, under the Code, the time for making a distribution may be postponed by the Secretary of the Treasury if the distributee is in service in a combat zone, or in the case of a Presidentially-declared disaster or terrorist or military action.

Please contact us if you have any questions concerning the guidance on the waiver of the 60-day rollover requirement.