Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

The worst thing about the IRS’s “evolving” standards is that the IRS is not consistent. The IRS has taken to reciting a mantra in the PLRs where it denies the waiver: A waiver will be granted only if the deadline was missed because of one of the factors listed in Rev. Proc. 2003-16. See, e.g. , PLRs 2007-27023, 2007-30023, 2010-15039. Yet this pious recital is absent in many PLRs which do grant a waiver, because the IRS regularly grants waivers when the ability to meet the rollover deadline was completely within the participant’s control at all times and no factor listed in the Rev. Proc. existed; see, e.g. , PLRs 2006-06055, 2009-30052, 2009-51044, and 2009-52066 (waiver granted because the final day of the 60-day period fell on a bank holiday); PLRs 2007- 15016 (participant received two distributions when he had requested one; he was granted a waiver despite no mention of any illness or other problem that prevented him from noticing the double distribution or rolling it over); and 2007-08085, 2007-26031. Another inconsistency has to do with reliance on tax advice of a professional advisor. Sometimes erroneous tax advice is grounds for granting a waiver ...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. Says the IRS “We do not believe that Congress intended to permit the Service to retroactively correct tax treatment choices which do not produce the expected benefits even though ...these choices were the result of erroneous advice” by the financial consultant. But in PLRs 2006-09019 and 2009-25047 the IRS granted waivers to widows who were told (incorrectly) by their advisors that distributions from their deceased husband’s retirement plans were tax-free. What’s the difference? The IRS mentions the widow’s depression in PLR 2009-25047; is the IRS saying that it is reasonable to rely on professional tax advice only if you are mentally ill? The most insidious trend in IRS waivers is that they will not grant the waiver if the taxpayer himself made a mistake that caused the rollover deadline to be missed (and the taxpayer was not incapacitated). For example, an individual who clearly requested a direct rollover to an IRA, but wrote the wrong account number on his form, so the money went into a taxable account by mistake, and nobody noticed the mistake until after the deadline had passed—the IRS did not grant a waiver, because they said the ability to complete the rollover was within his control at all times. See PLRs 2010-02049, 2010-03030, 2010-06035, 2010-07080, 2010-15039, and 2010-37038 for other examples of this trend. The tragedy is that, in most of these hardship waiver-seeking cases, if the participant had just read his account statements when they came in, he would have discovered the mistake immediately and been able to fix it within 60 days. 2.6.08 Avoid some rollover requirements with IRA-to-IRA transfer Some of the technical rules that apply to rollovers do not apply to IRA-to-IRA transfers (see ¶ 2.6.01 (E) for definition).  IRA-to-IRA transfers are not considered to be distributions from the transferor IRA, nor are they considered “contributions” or “rollovers” to the recipient IRA for IRS reporting purposes. PLR 2005-28031; Instructions for IRS Forms 1099-R and 5498 (2010), pp. 5, 14.