On October 20, 2014, a taxpayer cashed in an annuity contract held in an IRA and intended to roll the proceeds over into an IRA account.
However, funds from the annuity were mistakenly deposited into a non-IRA account by her financial advisor. In May of 2016, the taxpayer first became aware that these funds were transferred to a non-IRA account when she received a Notice of Deficiency from the IRS.
Until that time, the taxpayer had believed that she properly rolled the funds over from one IRA account into another. Under the law, any distribution from an IRA shall be included in the taxpayer’s gross income. However, the law provides an exception if the money is rolled over from one IRA into another IRA within 60 days.
If the 60-day requirement is missed, the money is then taxable. However, the IRS can waive this requirement if failing to do so would be against equity or good conscience, including casualty, disaster or other events beyond the reasonable control of the taxpayer.
In this case, the taxpayer filed a request for a Private Letter Ruling asking IRS to waive the 60-day rollover requirement. In holding for the taxpayer, the IRS noted that the failure to accomplish the rollover within the 60-day period was due to the failure of her financial advisor to invest the amount withdrawn into another IRA account.
The IRS also noted that the taxpayer had a medical condition that impaired her cognitive function and ability to understand financial statements. The IRS, in ruling in her favor, allowed the waiver of the 60-day rollover.
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