Ignore Those Bad Idea Bears-IRA Not a Good Bridge Loan Source

Private Letter Ruling 201118025
Private Letter Ruling 201116044
Private Letter Ruling 201116040
Private Letter Ruling 201117046

My friend suggested we get a series of tickets to plays at Hanover Theater.  I don't regret it, but I have to say I was a little disappointed.  My idea of what a play is was more or less fixed while I was in high school.  I had the good fortune to attend Xavier High School in Manhattan and we had a fantastic English teacher Brian Moroney who would get us discount tickets to plays.  It was quality stuff, but not first run Broadway stuff - off-Broadway, Lincoln Center etc.  So I always think of plays as kind of deep and profound and maybe a little depressing.  When I reflect on it, I sometimes wonder what the point of bringing a bunch of Irish Catholic kids to see Long Days Journey into Night was.  Half of us could just go visiting to find that kind of alcoholic dysfunction and the other half could just stay home.  Turns out that Hanover at least in this series was all musicals all the time.  I like musicals as well as the next guy although maybe not quite as much as The Wandering Tax Pro, but I'm still aching to see something like Hedda Gabler.  Maybe next year.  Which is not to say you can't get something worthwhile out of musicals, even an extremely silly one like Avenue Q.

In Avenue Q the characters are people, Muppet like creatures and people walking around with Muppet like characters.  Among the latter were "the bad idea bears".  They kept telling the main character to do foolish things like spending all his money on beer.  They weren't giving much financial advice, but if they thought of it I'm sure one of their suggestions would have been to use your IRA for a bridge loan.  Most people think its a bad idea to take money out of your IRA before you are 59 1/2 (I'm counting the days by the way) and even then if you don't need it.  What if you have a temporary need for money though ?

Here is what the bad idea bears have to say on the subject.  If you withdraw money from your IRA you have sixty days to roll it over into another IRA.  So if you need some money for a short period like five or six or seven weeks just take it from your IRA and put it into another IRA before the sixty days are up.  Besides if the IRS is pretty forgiving if you somehow foul up and go past the sixty days.  They give favorable rulings on that all the time.

I mean just recently there were two rulings where people were allowed to make late rollovers PLR 201116040 and PLR 201116044.  Some crook stole the money so the taxpayers got more time to make the rollovers.  So if something goes wrong maybe you can just say you thought it was 90 days like the lady in PLR 201117046.  Oh, that didn't work did it ?  That lady was denied relief.

Well what about the fellow in PLR 201118025, who was trying to help out his mom.  If anybody deserves relief it is him.  I mean check out the story:

Taxpayer A represents that when his elderly mother, Individual B, developed mobility limitations which made it unsafe for her to remain in her two-story residence, Taxpayer A's siblings developed a plan which, in pertinent part, involved Taxpayer A and his siblings pooling their money to add to the sale proceeds of the first residence in order for Individual B to make a cash purchase of suitable housing. Individual B would then enter into reverse-mortgage financing of the new residence and receive a lump-sum cash payment which she would use to repay Taxpayer A and the others. Taxpayer A would then redeposit Amount N into IRA X.


On Date 1, Taxpayer A received a distribution of Amount N from IRA X. On Date 2, seven days after Date 1, Amount N was applied to the above described purchase. Also, on Date 2, Bank D began processing the reverse mortgage. Taxpayer A represents that Bank D gave assurances that the mortgage process, including payment to Individual B, would be completed within a time frame which would have allowed Taxpayer A to meet the 60-day period for rolling over Amount N into IRA X, however, numerous delays by Bank D resulted in the mortgage not having been processed as of the 60th day after the distribution of Amount N from IRA X.

Taxpayer A represents that upon completion of the processing of the reverse mortgage, Taxpayer A was reimbursed in full and immediately mailed an amount equal to Amount N, to Financial Institution C with instructions to redeposit Amount N into IRA X. On Date 3, Amount N was redeposited into IRA X, however, as explained above, the 60-day period for rolling over Amount N into an IRA had already expired.

Bad idea- Bank D may have screwed up, but Bank D wasn't involved in the IRA either outgoing or incoming:

Taxpayer A has stated that error by Bank D is responsible for his failure to make a timely rollover of Amount N, however, when Amount N was presented to Bank D, Taxpayer A did not intend that Bank D transact any financial matter relating to an IRA. Rather, Amount N was withdrawn from IRA X at Financial Institution C and was presented to Bank D for the purpose of contributing Amount N, on a temporary basis, toward the purchase price of a suitable residence for Individual B. In essence, Taxpayer A made a short term loan when he withdrew Amount N from IRA X and while he had the intent at the time of withdrawal to redeposit Amount N into IRA X prior to the expiration of the 60-day rollover period, he assumed the risk that Amount N might not be returned to him timely.


The ruling would have been better if they had said that the residence involved was on Avenue Q, but you can't have everything.

Steve Martin - Tax Advisor

This was originally published on PAOO on 6/8/10.

Private Letter Ruling 201016097

There is a bit that Steve Martin does where he tells you how to make a million dollars and pay no income tax. It’s a very simple plan. First you make one million dollars. Then you pay no income tax. He then addresses the possibility that the IRS might contact you. Simple. You just say “I forgot”.

Any time I see something of such elegant simplicity I want there to be something to it. Some kernel of truth hidden in the nonsense. When it came to Steve Martin’s routine, though, I despaired Until now.

Private Letter Ruling 201016097 was not directed to Steve Martin. The ruling is directed to a taxpayer who is 82 and according to Wikipedia, Steve was born in 1945. Nonetheless it finally vindicates him as a tax advisor. The taxpayer withdrew all the money from a Roth IRA and failed to put it into a rollover Roth within 60 days. The head note to the ruling indicated that the failure was “due to her mental health conditions which affected her ability to handle her financial affairs”. (That “her” is another clue that it wasn’t Steve Martin, himself, applying for the ruling). More on the gender issue follows.

I thought we might be heading to a punch line involving you have to be crazy to blow a roll over deadline, but I was delighted on deeper reading to find an illustration of the Steve Martin Rule (We need to specify Steve to avoid confusion with Martin Ice Cream, a key decision on personal good will). As we read about Taxpayer A moving funds from IRA Account X to non IRA account Y at financial institution M. We find “Taxpayer A represents that he suffers from a condition which impairs his memory.” There it is. “I forgot.” Whether the memory issues having anything to do with the gender transformation between the head note and the third paragraph is a question left unanswered.


Taxpayer A was granted relief. He or she may have forgotten about the whole thing by now, but the rest of us can remember the next time we are in a jam to say “I forgot.”


Oh by the way :

Any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein