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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7268
Experience:  15years with H & R Block. Divisional leader, Instructor
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Hello. I screwed up bigtime... Earlier this year, I took

Resolved Question:

Hello. I screwed up bigtime...

Earlier this year, I took an early distribution with penalty (long story) from brokerage A Traditional IRA account. I asked for $60k minus estimated tax withholding (+ 10% penalty. Needed it and hardship did not qualify for exemption from penalty). Good so far.

When doing this, however, I had the balance rolled over into brokerage B... Amt in excess of $100k.

2 checks arrived, but I thought the 2nd check was simply a payment notice to Brokerage B. not so. Rather -- it's an uncashed check that has been sitting on my desk for 5 months!!!

Brokerage A is unable to undo this since a 1099 has already been cut and it has been over 60 days. During this time I was under extreme duress and not taking care of business as needed.

I'm sending this check to Brokerage B today, but now how do I avoid taxes? Technically I suppose I owe for 2012 taxes because of this, but I reported that I'd rolled over the distro because I thought I had electronically.

What are my options?

Matt
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Robin D :

Hello and thank you for using Just Answer,
You are correct in the assessment of your situation.

Robin D :

There are times when a correction can be made but they involve the institution making the mistakes. As you physically received the check you would have to report it as income.

Robin D :

This is going to require that you amend your return.

Robin D :

I wish I could say that the IRS would allow a correction on this,

Customer: I guess I'm asking for advice with non-traditional solutions. Any chance the IRS has accepted grievance statement and lowered the penalty?
Robin D :

Not the 10% but any penalty for the balance due, yes.

Robin D :

You can request they abate any penalty that is added because of the underpayment of tax

Robin D :

Your reason does not even have to be good for a onetime request

Robin D :

Taxpayers are allowed that if it has never been asked for in past

Robin D :

The IRS waives the 60-day rollover requirement automatically only if all of the following apply:




  • The financial institution receives the funds on your behalf before the end of the 60-day rollover period.




  • You followed all the procedures set by the financial institution for depositing the funds into an eligible retirement plan within the 60-day period (including giving instructions to deposit the funds into an eligible retirement plan).




  • The funds are not deposited into an eligible retirement plan within the 60-day rollover period solely because of an error on the part of the financial institution.




  • The funds are deposited into an eligible retirement plan within 1 year from the beginning of the 60-day rollover period.




  • It would have been a valid rollover if the financial institution had deposited the funds as instructed.


Robin D :

You can still ask them for a waiver.

Robin D :

In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including:




  • whether errors were made by the financial institution (in addition to those described under automatic waiver, above);




  • whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error;




  • whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check); and




  • how much time has passed since the date of distribution.


Robin D :

The broker is most likely going to advise that you seek a tax professional to ask for the waiver

Customer:

I was hoping for lenience if I show it was in fact rolled over properly and never cashed, and then pay some kind of nominal penalty for having the funds available for that period exceeding 60 days -- 90 days in this case.

Robin D :

That is what the waiver request is for

Robin D :

The check was not given to the institution so the rollover was not done correctly but if you have a reason (like I listed above) then they may allow it.

Customer:

check cut 11/23/2012

Robin D :

Then you need to act fast and request the waivver to extend the 60 days

Robin D :

If the iRS grants it then you will not have any penalty and will not need to amend to include in your income

Customer:

will do. I suppose it only makes sense to continue with depositing the full, untaxed (nothing withheld) amount today into Brokerage B ?

Robin D :

If they will accept it yes

Robin D :

That will assist in showing that you really never had the funds

Robin D :

and that you were not attempting to use the funds for reasons othe rthan rollover

Customer:

Thing is -- I don't have $40k to pay in taxes/penalties right now, and the last thing I want is to dip into this again and get penalized 2x just to pay the taxes!

Robin D :

Right

Robin D :

The check may need to be reissued (depending on date) so call the broker today

Robin D :

explain that ou are going to request the waiver based on ...... and if the will accept the check then that is good

Customer:

But if I get it reissued it may have the appearance of impropriety, no?

Customer:

I guess that's why I wanted proof that this check never became cash in hand.

Robin D :

Not really, what if you had never received it? What if the check had been lost in the mail? What if? There are many reasons for checks being reissued.

Customer:

Well... if it gets reissued, it WILL become cash in hand in preparation for taxes, and IRS will not know that's why I did it.

Customer:

Will any accountant do for this type of request, or do I need a tax professional to prepare this for me?

Customer:

headed out; I'll return later this afternoon.

Robin D :

If your accountant does not know how to make the request for waiver Revenue Procedure 2013-4, Appendix A, contains a sample letter ruling request format. Appendix B contains a checklist of information that you should submit with ruling requests made under the revenue procedure.

Robin D :

Sorry for the delay before. I lost my connection.

Robin D :

The link above should be all your professional needs to prepare the request.

Robin D :

Your positive rating is always thanks enough.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7268
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and other Tax Specialists are ready to help you
Expert:  Robin D. replied 1 year ago.
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