Inability to Sell Home in Bad Real Estate Market Doesn’t Gain Taxpayer Late Rollover Relief

In PLR 201146024, the IRS declined to grant a taxpayer a waiver of the 60 day rollover period that was tied to problems selling the taxpayer’s residence.  In the ruling request, the taxpayer’s daughter, acting under a power of attorney, withdrew funds from her IRA to be used to pay for an assisted living facility.  She intended to replace those funds with the proceeds from the sale of the taxpayer’s residence.

However, the daughter discovered the property had become run down due to the lack of care that had taken place due to her mother’s dementia.  As well, the poor real estate market made it more difficult to sell the property than the daughter had expected it to be.  Thus the sixty day period expired before the residence could be sold.

The taxpayer asked the IRS to waive the 60 day period due to this hardship.  The IRS declined to do so, noting that while the taxpayer may have been unfit to manage her affairs, the daughter was actually doing so during the entire period in question.  As well, the ruling makes clear that if a taxpayer “borrows” from an IRA with the hope of being able to replace the funds due to a later access to funds (in this case selling the residence), the taxpayer has to accept the risk if the access to the funds does not take place.

The IRS is generally insistent that taxpayers looking for relief must show one of the factors enumerated in Rev. Proc. 2003-16, which generally includes showing errors committed by a financial institution, death, hospitalization, postal error, incarceration and/or disability.  The ruling does suggest that if the taxpayer herself had withdrawn the funds and only later had the daughter taken over control that the IRS might have been willing to find the withdraw itself was due to the disability of the taxpayer (dementia has been held to be such a disability by the IRS in prior rulings).   But with that not being the case here, the IRS refused to grant relief.

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