60 day rollover | Ed Slott and Company, LLC

60 day rollover

Taxpayer (T) took a new job in another state in late April, 2006 with the plan of selling their old residence and buying a new home in the new state. T & Spouse (S) made several house hunting trips to the new state and found a home to purchase. Since the old residence had not sold yet, T "borrowed" $54,000 from his IRA for down payment, etc. on the new home intending to roll the $54,000 back into his IRA when the old home sold within the 60-day rollover period. About 45 days into the rollover period, T recognized that the old home wouldn't sell in time to fund the rollover back into his IRA. So, S withdrew $54,000 from her IRA to fund the rollover into T's IRA. On May 17, 2006, T instructed Fidelity Investments to wire transfer $54,000 from his IRA account to his checking account at a local bank. T's IRA account at Fidelity was invested in two different funds. The IRA withdrawal was done by taking $27,000 from each fund. The incoming wires were credited to T's checking account on May 18, 2006. This date started the running of the 60-day rollover period. Therefore, the 60th day would be July 17, 2006. T started a new job in another state on May 22, 2006. T was working in one state and S was still residing in the old state. Approaching the 60-day deadline, T instructed S to go to the local Fidelity office to complete the rollover of T's IRA. On Monday, July 17, 2006, S went into the local Fidelity Investment office to complete the rollover of T's IRA. The teller looked up the account and told S that a deposit of $27,000 was needed to complete the rollover. S wrote a check for that amount and left. That night, S spoke with T on the telephone and described what she had done and which account she wrote the check from. T immediately realized that S had used the wrong checking account (that had insufficient funds to cover the check) and that the amount was incorrect. This mistake was discovered well after the Fidelity office and the local branch of the bank had closed. T stopped payment on the $27,000 check that S had written that day. S went into the local Fidelity office the very next morning and wrote a check for the correct amount ($54,000) from the correct checking account to complete T's IRA rollover. The questions we have are: 1. Is the fact that the taxpayer attempted to complete the rollover on the 60th day and actually completed it on the morning of the 61st day sufficient to treat the rollover as completed and not subject the withdrawal to tax and penalty? 2. Assuming we can't treat the rollover as being timely, what is the likelihood of obtaining a favorable private letter ruling from the IRS given this fact pattern? 3. Approximately how long does it take to get a private letter ruling back from the IRS, that is, what is the elapsed time from filing to conclusion? Can we expect to have an answer by the October 15, 2007 filing deadline? 4. Depending upon the time expected for a response to the request for private letter ruling, if we haven't received a response by the October 15, 2007 filing deadline, how should the 2006 return be prepared? Should we file the return without taxing the withdrawal? Should we file a return including the withdrawal and earnings on the excess contribution in income? Does the taxpayer need to withdraw the $54,000 and the earnings before filing the return? Can we leave the $54,000 and earnings in the account and withdraw it only if the request for relief in the private letter ruling is denied? 5. If the taxpayer withdraws the $54,000 and the earnings before the private letter ruling is received and the IRS does grant relief, how does the taxpayer get the money back into his IRA? Would the trustee likely accept the "recontribution" of the $54,000 plus earnings? 6. In the process of obtaining a private letter ruling, will the IRS ask for additional information and/or documentation, or do they simply act with the facts as presented to them in the request for a private letter ruling? 7. Does anyone have a sense for how long it would take to prepare the request for private letter ruling in this case and an estimate of the cost involved? I know the IRS fee is $1,500. Is there a general fee or fee range for this type of request? Does anyone with experience in preparing private letter ruling requests have an idea of the total cost for a project of this scope?

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