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Bill, Enrolled Agent
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In January 2008, I wanted to roll over funds in a 401K fund

Customer Question

In January 2008, I wanted to roll over funds in a 401K fund from a former job to an existing IRA account of mine. I contacted the 401K plan administrators (a bank), and directed them cut the check - around $5545 - and make it out to the IRA fund - not me - but to send it to my mailing address. It arrived at my mailing address, but I promptly put it in a file folder, and misplaced it for over a year. In April 2009 - before I filed my 2008 taxes - I took the check to the local office of my IRA fund, gave it to them, and asked that it be applied to a 2008 contribution. The local office of the fund noted that the date on the check was old, but they called the issuing bank, who verified that the funds were okay and the check was good, and the check was received and accepted by my local IRA office. In May, 2009, I was having a long-distance conversation with a person in the home office of my IRA fund, and he happened to notice that the $5545 contribution was credited to the 2009 tax year, and not 2008. (Why, I'm not sure.) But then he then explained the 60-day "rollover with no tax penalty" rule. He said that due the issuing date on the rollover check (January, 2008), and the fact that the funds were rolled over to the IRA well after the 60 days (in April, 2009), that there would be "tax implications" for me. (The 20% penalty, I gather.) Here's my question. Is it worth presenting a case to the IRS that they should waive (and inform my IRA fund administrators while they're at it) the 60-day rule SINCE the rollover check wasn't made out to me, but to the IRA plan? And if so, how do I go about issuing this "appeal" to the IRS? My argument is that since the check wasn't made out to me, I had no control over the funds, so I really didn't violate the spirit of the 60-day rule. (I've filed for an extension on my 2010 taxes, but I need this question answered so I can file them correctly.) I was born in 1951. Many thanks for your help.

(Addendum: at some point, if my memory serves, the 401K bank MAY have contacted me in August, 2008, and mentioned that the January, 2008 check had not been cashed. My possible recollection is that I may have forwarded the original check to the main office of the IRA fund right after I got it with a deposit slip, and that this original check was lost either in the mail, or by the IRA fund. The 401K fund may have issued a 2nd check in August, 2008 - again, made out to the IRA fund, not me - and sent it to me at that time. THIS may have been the check I misplaced, and then deposited in April, 2009. But I haven't been able to locate the stub.)
Submitted: 4 years ago.
Category: Tax
Expert:  Bill replied 4 years ago.
Chat Conversation Started
Bill :

The check should have been deposited to your IRA as a rollover not a contribution. The 60 day rollover limitation rule would not apply since the check was made payable to the IRA trustee and not to you. You should contact your IRA trustee and advise them that an error was made when the check was deposited and request that they correct it by changing the description of the deposit from a contribution to a rollover. Also, request that they issue a corrected Form 5498 reflecting this change. Since the check was issued to you in 2008, you should have received a Form 1099-R for that year and reported it as a rollover on your 2008 return.

Customer :

Bill:

Customer :

Many thanks for your reply. I have a couple of follow-up bits. (1) Indeed, when I went to my IRA fund's local office in April, 2009, I _did_ explain to them that the $5545 was from my 401K and that I was presenting the check to the IRA fund as a rollover, not a contribution. (Sorry if I gave you that impression that it was presented as a contribution.) When I had contact with them in May, 2009, and they told me that they had characterized it as a contribution, and not a rollover, and that I may have tax consequences. I realized that they characterized it as a contribution because of the 60-day rule. And that was that, as far as they were concerned - they didn't care that the check had been made out to them, and not me, and that their 1st-level supervisor wouldn't change the characterization. Time passed, and when I got my tax paperwork from them, I discovered very close to April 15 that they listed it as a contribution, and not a rollover. (2) It sounds like you're confident that I'll be able to convince them to issue a corrected 5498, based on the facts of situation. Are you basing your confidence on a past case involving exactly this kind of issue where the check was misplaced and written out to the fund, and not an individual taxpayer? Is there some case or IRS form I can cite?

Customer :

"May, 2009, and they told me" should be "May, 2009 they told me"

Customer :

(I'll eventually hit the "Accept" button, but this is my first time here, and I'm worried that if I do, the "Reply" button will go away, and that the conversation will be over!)

Expert:  William Ellis, CPA replied 4 years ago.
Please send me a message if this works out for you because the IRS usually does not bend in these situations, especially when the company can probably produce a copy of the check that shows its issue date.
Expert:  Bill replied 4 years ago.

Customer,

 

Since the check was made out to the IRA trustee and not to you, you did not have constructive receipt of the funds. You could not have cashed the check. Hence, the 60 day rollover rule was not applicable. I have previously researched this issue and found this response from the IRS. I will search for it and forward it to you if I find it.

Expert:  Bill replied 4 years ago.
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3081
Experience: EA, CEBS - 34 years experience providing financial advice
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Customer: replied 4 years ago.
Bill:

Many thanks for your response. I'm a little confused, and perhaps you can clarify. You said that you have "found this response from the IRS" but the link you sent seems to be a working document by a private attorney, and not from the IRS. Is this the correct reference you were thinking about?

Thanks - I'm clicking "Accept Answer" after this reply. I'm going to try to meet with my IRA fund tomorrow.
Expert:  Bill replied 4 years ago.
This wasn't the response from the IRS that I referenced but I came across it when searching for the IRS piece and thought you would like to review it. I am still looking for the IRS piece I referenced and will forward it to you when I find it.
Expert:  Bill replied 4 years ago.

This isn't the source I was looking for but these regulations provide more details on direct rollovers. Q&A #4 describes your scenario:

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=a7eec21523dbde9d024c585af97028b0&rgn=div8&view=text&node=26:5.0.1.1.1.0.2.67&idno=26

 

 

 

Expert:  Bill replied 4 years ago.

A IRC Section 402(f) notice must be provided to a participant when he/she is eligible to take a distribution from a qualified plan. Here is an example of the language that must be on the notice:

 

From page 10 of the IRS Notice 2009-68 - http://www.irs.gov/pub/irs-drop/n-09-68.pdf

 

"How do I do a rollover?

There are two ways to do a rollover. You can do either a direct rollover or a 60-day

rollover."

 

This excerpt clearly differentiates between a "Direct Rollover" which does not have a 60 day requirement or a "60 day rollover" (which would be defined as an indirect rollover).

 

Since the check was made payable to the IRA trustee then it was processed as a Direct Rollover.

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