A Ruling to Remember
Tax Tip of the Week | October 30, 2013 | No. 222 | A Ruling to RememberPrivate Letter Ruling 201316024
A Ruling to RememberA taxpayer we will call Clint, decided to do his daughter a favor. She was attempting to purchase a home that was in foreclosure. Part of the qualification to buy the home was having a substantial amount of funds on deposit. Clint took an IRA distribution and deposited part of it in a non-IRA escrow account. He intended to rollover the distribution back into the IRA upon the completed purchase of his daughter's home.However, because of the nature of the foreclosure sale, the funds were not returned to the taxpayer within the 60-day rollover window. Clint still deposited the amount in a new IRA, but received a deficiency notice from the IRS based on the distribution from the initial IRA.Clint filed a private letter ruling asking the IRS to waive the 60-day rollover requirement with respect to his IRA distribution. The IRS' answer was a swift and authoritative NO. IRS deemed that Clint did not present any evidence to preclude him from a timely rollover of his IRA distribution back to an IRA. In effect, he took a short-term loan from his IRA, and with it, assumed the risk that it might not be returned to him in a timely fashion.Lesson to Learn:Account owners have been doing this for years, and when the funds are not returned on time the answer from IRS is always the same - NO. You cannot use your IRA funds as a short-term, interest-free loan. The account owner must recognize the risk and be ready to face the consequences if they cannot get the funds back in time.(Note: Private letter rulings (PLRs) are written decisions by the Internal Revenue Service in response to taxpayer requests for guidance. A private letter ruling binds only the IRS and the requesting taxpayer. Thus, a private ruling may not be cited or relied upon for precedent. The fee to submit a PLR starts at $625.)This article appeared in Ed Slott’s “Monthly IRA Update”.
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