This article examines Private Letter Ruling (PLR) 202535015, which addresses a taxpayer’s request for a waiver of the 60-day rollover requirement for an Individual Retirement Account (IRA) distribution. This ruling provides insight into how the Internal Revenue Service (IRS) applies its discretionary authority in cases involving fraud.

Factual Background of the Request

The case involves Taxpayer A, who made a withdrawal of Amount 1 from IRA X, a traditional IRA under Internal Revenue Code (Code) section 408(a), on Date 2. Taxpayer A asserted that the failure to complete a rollover within the 60-day period prescribed by Code section 408(d)(3) was directly attributable to being the victim of a fraud scheme.

The elaborate fraud began on Date 1 when Taxpayers A and B received a computer alert and contacted what they believed to be Company A. Individual 1, falsely claiming to represent Company A, conducted a scan and informed them that a virus had compromised their financial accounts, directing them to contact Individual 2 at Bank A. Individual 2, also a false representative of Bank A, provided a forged letter stating that he was the only trustworthy contact and that their funds in Bank A had been moved to "secure locker accounts" pending his investigation.

Individual 2 then convinced Taxpayers A and B to make three wire transfers of Amount 3 from various financial accounts to a cryptocurrency account of Company B with Bank B. On Date 3, Taxpayer A transferred Amount 2, which notably included Amount 1 from IRA X, into this cryptocurrency account. Taxpayers A and B maintained frequent contact with Individual 2. On Date 4, they were informed by Individuals 1 and 2 that the investigation was complete and their funds would be returned. However, upon attempting to check on the progress the next day, they discovered that the contact numbers for Individuals 1 and 2 were disconnected.

Realizing they had been scammed on Date 5, Taxpayers A and B filed reports with various governmental agencies and Bank A, requesting a recall of the Amount 2 wire transfer. Agency A, with the assistance of Agency B, successfully secured Amount 2 from Company B. On Date 6, Taxpayer A received the recovered Amount 2 and deposited it into Taxpayers A & B’s account with Bank A. Taxpayer A explicitly represented that Amount 1 had not been used for any other purpose.

Taxpayer’s Request for Relief

Based on these facts, Taxpayer A requested a ruling from the IRS to waive the 60-day rollover requirement under Code section 408(d)(3) for Amount 1 that was distributed from IRA X on Date 2.

IRS Legal Framework and Analysis

The IRS’s analysis commenced by outlining the general rule for IRA distributions. Code section 408(d)(1) dictates that, unless otherwise provided, any amount paid or distributed from an IRA is generally included in the payee’s or distributee’s gross income as provided under Code section 72.

Code section 408(d)(3) establishes the rules for IRA rollovers, which serve as an exception to the general rule of income inclusion. Specifically, Code section 408(d)(3)(A) provides that Code section 408(d)(1) does not apply if:

The entire amount received (money and other property) is paid into an IRA for the individual’s benefit not later than the 60th day after receipt.
The entire amount received is paid into an eligible retirement plan (other than an IRA) for the individual’s benefit not later than the 60th day after receipt, up to the includible portion of the amount received.

The Code also includes limitations, such as Code section 408(d)(3)(B), which prevents a tax-free rollover if the individual received another tax-free IRA rollover distribution within the preceding one-year period. Code section 408(d)(3)(D) extends a similar 60-day rollover period for partial rollovers, while Code section 408(d)(3)(E) clarifies that rollover provisions do not apply to amounts required to be distributed under Code section 408(a)(6).

Crucially, Code section 408(d)(3)(I) grants the Secretary of the Treasury the authority to waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D). This waiver may be granted where the failure to do so would be "against equity or good conscience," specifically including situations involving casualty, disaster, or other events beyond the reasonable control of the individual. This waiver authority applies only to distributions that occurred after December 31, 2001.

To guide the application of this waiver authority, the IRS refers to Section 3.02 of Revenue Procedure 2003-16, 2003-4 I.R.B. 359 (January 27, 2003). This procedure outlines several relevant facts and circumstances that the Service will consider when determining whether to grant a waiver:

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 (e.g., whether a check was cashed).
The time elapsed since the distribution occurred.

Application of Law to Facts and Conclusion

In this specific case, the IRS determined that the information and documentation provided by Taxpayer A were consistent with the assertion that the failure to accomplish a timely rollover was caused by being a victim of a fraud scheme. This directly aligns with the "events beyond the reasonable control of the individual" criterion for a waiver under Code section 408(d)(3)(I).

Consequently, pursuant to section 408(d)(3)(I) of the Code, the Service waived the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA X. Taxpayer A was granted a period of 60 days from the issuance of this ruling letter to contribute Amount 1 into a rollover IRA. Provided that all other requirements of Code section 408(d)(3) (except for the 60-day period) are met, Amount 1 will be considered a rollover contribution within the meaning of Code section 408(d)(3).

It is important to note that this ruling did not authorize the rollover of amounts that are required to be distributed by Code section 401(a)(9) (required minimum distributions). Furthermore, as a private letter ruling, it may not be used or cited as precedent. The ruling expresses no opinion on the tax treatment of the described transaction under any other section of the Code or applicable regulations.

This PLR underscores the IRS’s willingness to grant relief in compelling circumstances of fraud that prevent a timely IRA rollover, emphasizing the "equity or good conscience" standard. Tax professionals advising clients in similar situations should document the fraud and its direct impact on the taxpayer’s inability to meet the 60-day rollover deadline. A taxpayer would need to apply for a private letter ruling and have access to sufficient funds to complete the rollover, which is often not possible due to the infrequent recovery of such funds. The recovery of the stolen funds in this case was likely a key reason that made seeking the ruling a practical option.

Prepared with assistance from NotebookLM.