August 2, 2019 3:23 am

Attempted IRA Rollover Valid

A taxpayer took a distribution from her IRA of $524,981.89 to pay for the purchase of a home while she waited for the sale of her former home to close. When it did, she overnighted a check to the financial institution of her IRA for that same amount, directing it to deposit the check into her IRA. The check arrived on day 58 (there are 60 days in which to complete a rollover). For an unexplained reason, the redeposit didn’t occur until day 62. The IRS claimed this was a taxable distribution.

The Tax Court said it was a nontaxable rollover (Nancy Burack, TC Memo 2019-83). The failure by the financial institution to record the rollover within the 60-day rollover period was due to a bookkeeping error. She followed the instructions of the financial institution for making a rollover and it is clear that it received the check on time.

Note: She also asked that she be given a hardship waiver (as provided in Rev. Proc. 2003-16), which applies where funds are deposited into an eligible retirement account within one year from the beginning of the 60-day rollover period and would have been a rollover if the financial institution had deposited the funds as instructed. The court agreed that she would also qualify for a hardship waiver.

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Tax Glossary

Earned income credit

A credit allowed to taxpayers with earned income or adjusted gross income (AGI) below certain thresholds.

More terms