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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22646
Experience:  Taxes, Immigration, Labor Relations
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I am new tax prepare. My client she invested $ 85 K in 401K.

Customer Question

I am new tax prepare.
My client she invested $ 85 K in 401K. One of his relative by mistake draw all the 85 K from her account. Later on she recovered the 85 K and deposited back to the 401K after 120 days. Since she is very old lady, there is not early draw penalty.However, she want to avoid the income tax on redeposit of 85K in to 401K. Do you think it will be considered the roll over if she deposit after 120 days. She can put affidavit some body farudlently withdraw her money.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
Only the owner of the 401k plan may request the distribution.
If the relative was NOT authorized to request the distribution - that fraudulent fact must be reported to the police and police report should be sent to the administrator of the 401k plan - asking to annul the distribution.

LEV :

If that would not work out - the IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. In the absence of a waiver, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment.

The 60-day rollover requirement is waived 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.

LEV :

If you do not qualify for an automatic waiver, you can apply to the IRS for a waiver of the 60-day rollover requirement. To apply for a waiver, you must submit a request for a letter ruling under the appropriate IRS revenue procedure.
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 (other than those described under Automatic waiver, earlier),
--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.
Based on your information - chances to obtain a waiver are very high.

Customer :

What form has to be filled in order to get waiver from the IRs

Customer :

In case we have to write a letter what address we have to write a letter

LEV :

There is no special form.
A letter should be attached to the tax return
If you qualify for an automatic waiver - most likely you do - a letter should be attached to the tax return - to the same address as you send a tax return.
If you do not qualify for an automatic waiver - you can apply for a waiver by submitting a request for a letter ruling under the IRS revenue procedure. See more information here - http://www.irs.gov/Tax-Exempt-Bonds/TEB-Private-Letter-Ruling:-Some-Basic-Concepts

You must also pay a user fee with the application.

Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

There is no special form.
A letter should be attached to the tax return
If you qualify for an automatic waiver - most likely you do - a letter should be attached to the tax return - to the same address as you send a tax return.
If you do not qualify for an automatic waiver - you can apply for a waiver by submitting a request for a letter ruling under the IRS revenue procedure. See more information here - http://www.irs.gov/Tax-Exempt-Bonds/TEB-Private-Letter-Ruling:-Some-Basic-Concepts
You must also pay a user fee with the application.

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