A taxpayer who received advice from an adviser at a financial institution to which he planned to transfer her IRA was given relief by the IRS in PLR 201508021. That by itself is not unusual, but the nature of the “deficiency” in the advice was a bit unusual, as the situation was one where the IRS could have concluded that this was actually a taxpayer error, something the IRS has generally not been willing to forgive.
The taxpayer met with a new financial adviser to discuss transferring her IRA to the adviser’s bank. The adviser told her that if he simply transferred her holdings to the bank, the bank would charge a fee to liquidate the holdings. So he advised him to instead close out her account in the other institution and then deposit the funds as a rollover contribution in an IRA established at the bank. In that way he’d avoid the fees that would otherwise be charged.
The taxpayer instructed the other institution to close out her account, advising the representative of that organization that he planned to roll the funds into another IRA. The institution informed the taxpayer that due to the nature of her investments, it would take two to three months to complete the liquidations of her investments. The taxpayer received a series of checks as these transactions took place, with the first one dated October 20, 2013 and the final one dated December 28, 2013—just past sixty days after the initial check was issued.
The taxpayer took these checks to the new bank to deposit them as a rollover contribution in late January 2014. The taxpayer believed he had time to complete the transaction, as the checks had a notation on them that they were good for 180 days. Relying on the statement of the old financial institution that it would take two to three months to close out the account, he held all of the checks to deposit them at once.
The bank in which he was going to open the new IRA noticed the problem with the dates. The representative at the bank contacted the old financial institution and had payment on those checks stopped. The old institution had issued a Form 1099R for these payments, but represented to the IRS that the institution will issue a Form 5498 showing the funds as rolled over into its IRA.
The IRS, in deciding whether to provide relief, looked to Revenue Procedure 2003-16 which governs the provision of relief for late rollovers. It holds that in deciding on whether to grant such relief the IRS will consider all facts and circumstances, and then goes on to provide a list of specific circumstances to be considered, including:
- Errors committed by a financial institution;
- Inability to complete a rollover due to death, disability or hospitalization, incarceration, restrictions imposed by a foreign country or postal error,
- The use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and
- The time elapsed since the distribution occurred.
In this case the IRS found that an “error” was committed by the adviser at the old institution that caused the taxpayer to believe he could collect the individual checks and then take them to the new bank.