Charles Lin and Kathleen Sherby summarize the case of IRS Private Letter Ruling 201547010. They begin,
When the taxpayer in PLR 201547010 decided to invest his IRA assets in a partnership, he forgot to check whether his IRA provider was able to hold an interest in a partnership as an investment in the IRAs for which it served as custodian. While all IRA accounts are able to hold investments in publicly traded securities, i.e. stocks, bonds and mutual funds, not all IRA custodians are set up to handle alternative investments, such as direct ownership of a business, real estate, partnership interests and LLC member interests, in their IRA accounts managed pursuant to their IRA account agreements. In fact, some IRA account agreements specifically preclude ownership of such alternative assets in the IRA accounts covered by the IRA custodian’s account agreement.
In this PLR, Taxpayer A instructed the IRA Custodian to invest his IRA assets in a percentage partnership interest of Partnership C. The IRA Custodian issued a check in November of 2012 payable to Partnership C for the amount required for purchase of that percentage partnership interest in Partnership C, and Partnership C indicated that the percentage interest was owned by “Taxpayer A IRA”. However, since the IRA Custodian’s account agreement did not authorize the Custodian to hold the partnership interest in Taxpayer A’s IRA, the IRA Custodian issued a 1099-R reporting the payment to Partnership C as a distribution from Taxpayer A’s IRA. When finalizing the preparation of his 2012 income tax return in October 2013, Taxpayer A finally came to a full appreciation of the significance of the IRA Custodian’s 1099-R, that a mistake had been made in the purchase of the percentage partnership interest. Had he opened another IRA with another IRA Custodian whose account agreement would permit the ownership of a percentage interest in Partnership C in a new IRA account for Taxpayer A and had he directed the old IRA Custodian to transfer the amount for purchase of the Partnership C percentage partnership interest in a custodian to custodian transfer from Taxpayer A’s IRA B for a new IRA to use to purchase the Partnership C percentage partnership interest directly in a Taxpayer A IRA, there would have been no 2012 IRA distribution to report on his 2012 income tax return.
Since more than 60 days had elapsed following the purchase of the Partnership C percentage partnership interest with assets from Taxpayer A’s IRA B, the amount of the purchase price for this interest could no longer be rolled over to a new IRA without a waiver by the Service of the 60 day rollover requirement under § 408(d)(3). The Service has the authority to waive the requirement that the rollover of funds to an IRA be completed within 60 days from the date on which the distributee received the property distributed “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.” § 402(c)(3)(B).
Read the entire opinion here: All Assets Are Not Created Equal When It Comes to IRA Rollovers (PLR 201547010)
Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal