The IRS recently waived the 60-day rollover requirement for a taxpayer whose husband withdrew funds from her IRA pursuant to a limited power of attorney and failed to rollover the funds due to his gambling addiction.
The tax law permits a taxpayer to withdraw money from their IRA and avoid income taxation as long as the funds are rolled over to an IRA or other eligible retirement plan within 60 days of the distribution. A distribution that is rolled over beyond the 60 day period will generally be taxed and may be subject to the 10% early withdrawal penalty. The IRS is permitted to waive the 60 day requirement if a taxpayer experiences a casualty, disaster or other event beyond their control and failing to waive the rule would be unjust.
In this case a married couple each completed power of attorney documents as part of their estate and financial planning. The wife understood that the power of attorney would only be used if she became disabled, incapacitated, or was unable to make financial decisions on her behalf. It was not her intention that her husband have the ability to make financial decisions for her while she was in good health.
The taxpayer’s husband presented the power of attorney to the financial institution holding her IRA and told them she needed the money for medical expenses. The husband was able to withdraw the funds from his wife’s IRA and lost the money gambling. The taxpayer told the IRS that she was unaware of the distribution and did not need the money for medical expenses. The taxpayer subsequently found out about her husband’s gambling addiction and revoked the power of attorney. After the revocation she became aware of the IRS distribution.
The taxpayer provided documentation to the IRS of her husband’s gambling addiction including a statement from a doctor who began treating her him for his addiction.
Due to the fraudulent withdrawal by the taxpayer’s husband the IRS waived the 60-day rollover rule and allowed her to make the rollover at a later date.
If you have any questions regarding IRA rollovers or require help with IRS tax problems please contact the Certified Public Accountants at East Coast Tax Consulting Group for a free consultation.