In a private letter ruling (an “LTR”), the Internal Revenue Service (the “IRS”) waived the 60- day deadline for rolling over amounts into an individual retirement account (an “IRA”), since the IRA owner did not receive the 402(f) rollover notice.
In LTR 201308037, the taxpayer received a distribution of benefits, net of federal income taxes, from a tax-qualified defined benefit retirement plan (the “Plan”). The taxpayer used a part of the benefits to pay living expenses, and deposited the remainder of the benefits in a money market account at a bank. More than 60 days after receiving the distribution, when the taxpayer met with his accountant to prepare his income tax returns, the accountant informed the taxpayer that the entire amount of the benefits was subject to federal income taxation, as well as the penalty for early withdrawal under IRC Sec. 72(t). The accountant advised the taxpayer that the taxpayer should have received a notice from the Plan, under IRC Sec. 402(f), explaining that the benefits could be rolled over, thereby avoiding immediate tax and the penalty. The accountant further advised the taxpayer to ask the IRS to waive the 60-day IRA rollover deadline, which the taxpayer did.
In the LTR, the IRS said that any amount distributed from the Plan is generally taxable, unless the amount is rolled over into an IRA (or other eligible retirement plan) within 60 days of the distribution. The 60-day deadline is found in IRC Sec. 402(c) (3)(A). However, under IRC section 402(c)(3)(B), the IRS may waive the 60-day deadline, when the failure to waive would be against equity or good conscience, including the happening of a casualty, disaster, or other event beyond the reasonable control of the distribution recipient. Rev. Proc. 2003-16 discusses how the IRS will handle a waiver request. In this case, the IRS concluded that the failure to meet the 60-day deadline was due to the failure of the Plan to provide the 402(f) notice. Therefore, the IRS granted the waiver of the 60-day deadline for the amount of the benefits that had been deposited in the money market account. This gave the taxpayer the opportunity to avoid tax and penalty on this amount by now (within 60 days of the date of the LTR) depositing the amount in an IRA.