Private Letter Rulings for Relief from Missing 60-Day Rollover Rule

By Marvin Rotenberg, IRA Technical Expert

Private letter rulings (PLRs), are written decisions by the Internal Revenue Service (IRS) in response to taxpayer requests for guidance. A private letter ruling binds only the IRS and the requesting taxpayer and may not be cited or relied upon as precedent by other individuals. However, if the subject matter addressed in a PLR has broad application to the general public, the IRS can redact its text and reissue it as a revenue ruling, which becomes binding on all taxpayers and the IRS.

We have seen a tremendous request for PLRs when rollovers of distributions from IRAs and eligible retirement plans have not been completed within the required 60 day period. Individuals who have missed this deadline can request a ruling to grant relief and IRS is authorized by Congress to grant such relief in cases where the deadline was missed due to circumstances beyond the taxpayer’s reasonable control and where it is determined that failure to do so would be “against equity or good conscience.”

While IRS can grant relief with a PLR, giving taxpayers more time to complete the rollover, it should be understood that PLRs are both costly and time consuming. Also, to receive a favorable PLR in which relief from the 60-day rollover period is granted, there must have been true intent on the part of the taxpayer to actually do a rollover. IRS has denied requests where the funds were used for other purposes during the 60 days, even when the taxpayer had an urgent need. Thus, the granting of relief by IRS is not an automatic process. Facts and circumstances determine whether additional time beyond the 60-day period will be allowed in order to complete a rollover.

The user fee charged by IRS for most IRA-related PLRs is $10,000. The PLR user fee for 60-day rollovers is:

$3,000 for rollovers valued at $100,000 or more
$1,500 for rollovers valued at $50,000 – $99,999 and
$500 for rollovers valued at $49,999 and under.

These IRS fees are in addition to fees charged by professionals to prepare a ruling request, which can run an additional $5,000 to $10,000.

To avoid the 60-day rollover rule altogether, funds should be transferred among retirement plans using trustee-to-trustee transfers or direct rollovers wherever possible. With these transactions, the account owner is never in receipt of the funds directly and the 60-day rollover requirement and all the rules pertaining to it become irrelevant.

Direct rollovers and trustee-to-trustee transfers also avoid the mandatory 20% federal withholding tax on eligible rollover distributions from company plans, as well as the “one rollover per year” rule with respect to rollovers between IRAs. An advisor who is expertly-trained in rollover methods and rules should be consulted before requesting payment from your IRA or employer-sponsored retirement plan. Doing so can help you avoid easily-made mistakes and a mountain of financial difficulties.