Discussion:Waiver request of 60 day retirement rollover requirement

I have a client who needed to borrow money for emergency medical reasons until she got reimbursed for the medical expenses. Originally, client was anticipating receiving the reimbursement before the 60 day rollover period expired. There was a delay in receiving the reimbursement, so the 60 day rollover period passed.

I am going to assist the client with requesting a waiver of the 60 day rollover requirement. I'm wondering if anyone on here has any experience with this? I did quite a bit of reading up on this on the IRS website (Rev proc 2012-4 I believe it is)and the reason for requesting a waiver seems valid. However,making sense of how to exactly go about this is a whole other story. Here is my more basic translation of what needs to be done, any insight would be greatly appreciated

1.) send a letter ruling request to the IRS. The IRS provides a sample letter, but it is a bit difficult to understand the technical language being used. However, the IRS does not require this format, it's mainly a guide.

2.) Along with the letter, the taxpayer should include all relevant information such as name, address, ss#, reason for request, how long before the taxpayer anticipates on putting the money back into the retirement account, proof of how the money was spent, so on and so forth

3) a user fee needs to accompany the request - $500 for distributions $50,000 or less and $1,500 for distributions over $50,000

Thank you as always for any additional insight.

Will

If so I would quiry the IRS on whether there is a waiver for over distribution for medical expenses. No need to mention "until reimbursed". Putting the money back into the fund is between the fund holder and the TP. It is not relevant to the IRS waiver issue. I also don't understand the rollover part of your post. She either borrowed the funds from the investment or she took a medical exemption. What did she put on the application for the distribution or whatever communication she used?

There is a medical exception to the early withdrawal 10% tax under Sec. 72(t). And for most 401K plans, medical expenses are a reason for a hardship withdrawal, but that withdrawal is taxable. (Though this does not sound like a 401K withdrawal.)For IRA's if the money is restored within 60 days there is no tax nor 10% penalty, and that is what it sounds like she is trying to do but can't because insurance has yet to reimburse the expense.

I'm not so sure you'd be granted a favorable PLR in this case...but there's tons of them out there. Have you found one (or more) that closely match the facts of your case?

I drafted my PLR a few years ago, so I'm not completely in the loop in this area. But in general, the IRS does not want to see someone using their retirement plan as a "loan," to borrow from it only to be repaid later. The PLR's I've seen deal with botched rollovers due to financial institution mistake (and, I believe, there's some automatic relief for this nowadays without the PLR route). Or, a botched rollover b/c the taxpayer became incapitated and couldn't complete the rollover within 60-days.

Besides financial institution error, one of the other reasons that the IRS grants relief for missing the 60-day rollover period is the taxpayer’s inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error. See sec. 3.02 of Rev. Proc. 2003-16, 2003-4 I.R.B. 359. It seems to me that inability to complete the rollover within the 60-day period because the money had to be used for emergency medical expenses would probably qualify.

It was intended all along that the monies would be used for emergency medical expenses, from what I can gather from the OP. The inability to meet the deadline was "directly" due to the late receipt of the insurance reimbursement and "indirectly" due to taxpayer's medical condition. I say "indirectly" because had there not been a medical condition, there would have not been a withdrawal in the first place. That is, the failure wasn't due to taxpayer's disability, hospitalization, etc...taxpayer could have succeeded with the rollover had she received the insurance monies "as anticipated." So, I do not see proximate causation here.

In my view, without reading a bunch of PLR's, I do not think this one is a slam dunk at all.

You can read hundreds of these PLR's to get a feel for what will and will not work. And you might want to think about doing this. The government does not want people using IRA funds as a short-term loan. One of the main things they look at is if the money was still sitting there on Day 60 to see if it could have been rolled back in had things gone according to plan. In general, the money needs to be available on Day 60 (i.e. has not been spent down by the taxpayer). In the OP's case, there was no money on Day 60 with which to accomplish the rollover. As such, the implication is that the funds were withdrawn as a short-term borrowing.

On the other hand, if someone withdraws $60k, gets in a car crash and can't complete the rollover as a result, a favorable PLR will be issued. Here, the taxpayer had at least $60k in idle cash on Day 60 and could have completed the rollover were it not for the accident.