Life and Death Planning for Retirement Benefits

Chapter 2: Income Tax Issues

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financial institution error or other cause beyond the participant’s control. See, e.g., PLR 2010-16092.  In PLR 2004-04051, a disabled individual apparently used an IRA distribution to facilitate selling her house and moving to facility (paying the down payment), but was granted a waiver anyway. IRS’s rationale not specified. E. Lack of tax information/understanding . Many times individuals have sought a hardship waiver of the 60-day rollover deadline on the grounds that they did not understand the tax rules, no one told them it was taxable, etc. Especially in more recent years, the IRS tends to NOT grant a waiver simply because that the taxpayer didn’t know the rules. [Note: If the taxpayer received actual erroneous tax advice from a professional (as opposed to just receiving no advice at all), see “F” instead of this subsection.] An IRA provider has no obligation to tell you, when it makes a distribution to you, that the distribution you have just received is a taxable IRA distribution. Sometimes the IRA provider’s failure to mention the taxability is grounds for the IRS’s granting a deadline waiver to the person who received the distribution not realizing it was taxable, as in PLR 2007-08085 (participant requested and received distribution of the certificate for stock held in the IRA, not realizing that was taxable, and got a waiver) and PLR 2004-35017 (taxpayer took an IRA distribution, received “no information” from the IRA firm about the rollover rules, erroneously believed he had 90 days to complete the rollover and did not discover his error until after the 60-day deadline had passed. The IRS granted him a hardship waiver.). But then again sometimes it isn’t: In PLR 2014-32020, taxpayer closed out her IRAs at Financial Institution D but did not deposit the proceeds into new rollover IRAs until after expiration of the 60-day period. She said she was late because she relied on Financial Institution D “to provide guidance regarding the rules associated with her IRA investments, specifically the 60-day rollover period.” The IRS refused to give her a waiver, because there was no documentation that the financial institution was her financial advisor: “...the Code imposes no...obligation on IRA custodians [to explain the 60-day rule]. Absent actions on the part of a financial institution undertaking such an obligation we do not recognize this failure as financial institution error.” Note: The IRA provider’s lack of obligation to provide tax advice is in contrast to the situation with an employer plan—under a qualified plan, the employer and/or plan are obligated under § 402(f), when making a distribution, to inform the distributee of the tax options. See PLR 2007-27027 where a waiver was granted because the employer plan had distributed funds without explaining the rollover options to the distributee. F. Erroneous tax advice received. Sometimes erroneous tax advice is grounds for granting a hardship waiver of the 60-day deadline...and sometimes it isn’t. In PLR 2006-17039, the IRS refused a waiver where a participant took a distribution of employer stock from his company plan, not intending to roll it over because his advisor told him the distribution qualified for NUA treatment (see ¶ 2.5 ). After the 60-day rollover deadline had passed, he found out the distribution did not qualify for NUA treatment. Said the IRS: “We do not believe that Congress intended to permit the Service to retroactively correct tax treatment choices