October 1, 2014
The date of an irrevocable letter of authorization that an individual sent to a financial services company should be considered the date of the contribution to his retirement account, the IRS determined in a recent private letter ruling.
This situation involved a taxpayer who sent his financial services company a letter of authorization (LOA) instructing the company to transfer funds from one of the taxpayer’s non-retirement accounts to an IRA. The date of the letter – April 15 – was treated as the day of the contribution.
Thus, if the LOA was postmarked by April 15, or if the individual made a verbal request to the company by April 15, the taxpayer is deemed to have made the contribution by the end of the preceding tax year. The verbal request must be summarized in a document and signed and dated by the financial services company.
The letter of authorization must specify the amount of the cash contribution, the account from which the funds are being transferred and the tax year for which the contribution is made.
The rules regarding an IRA account allow taxpayers to make contributions to their accounts by the due date of their returns without taking into account any extensions. If a taxpayer made a contribution to his account by April 15, 2014, it would count as a 2013 IRA contribution because that is the due date for the 2013 return.
The issue here is that, although the actual transfer of funds occurred after April 15, the contribution authorized by the LOA was considered made in the preceding year. The IRS treated the date of the authorizing letter as the contribution date.
This private letter ruling (Letter Ruling 201437023, June 18, 2014) is consistent with a 1985 IRS private letter ruling in which the IRS stated that the postmark date of a contribution would be treated as the contribution date.
Please keep in mind that private letter rulings are not binding on the IRS. These rulings are based on a particular taxpayer’s facts and circumstances. There is no guarantee that the IRS would take the same position in another situation.
This article was originally posted on October 1, 2014 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at firstname.lastname@example.org.