Fraudulent Schemes, Retirement Accounts, and Tax Relief: What Taxpayers Need to Know

Taxpayers who are victims of fraudulent schemes are often out of luck when it comes to tax relief. But victims who make a fraudulent withdrawal from a retirement account may consider using a private letter ruling (PLR) to request a waiver of the 60-day rollover requirement to avoid including these withdrawals in income. And if the taxpayer is under age 59½, they can also avoid the 10% early withdrawal penalty as well.

Keep in mind, though, that the fee for making a PLR request for such a waiver is $12,500. Fraudulent Schemes, Retirement Accounts, and Tax Relief

The 60-Day Rollover Requirement

Generally, a distribution from a qualified retirement plan is required to be rolled over to another plan or account within 60 days after receipt to be excluded from income. The IRS may waive the 60-day requirement in circumstances where the failure to waive the requirement would be against equity or good conscience, including casualty, disaster, or other offense beyond the reasonable control of the individual.

In determining whether to grant a waiver of the 60-day requirement, the IRS considers all relevant facts and circumstances, including:

• Errors committed by a financial institution

• Inability to complete a rollover due to death, disability, hospitalization, or incarceration

• Restrictions imposed by a foreign country, or postal error

• The use of the amount distributed (e.g., if a check was cashed)

• The time elapsed since the distribution occurred

A 2024 Private Letter Ruling Example

The IRS granted such a waiver in a 2024 private letter ruling where a taxpayer fell victim to a fraud scheme in which she was convinced that she needed to transfer the funds in her IRA to a so-called “safety locker facility” because she had supposedly been the victim of identity theft.

After making several transfers to the safety locker, the taxpayer became suspicious and called the police, who were able to track down and arrest the perpetrator. The taxpayer requested and was granted a waiver of the 60-day rollover requirement for the amount she withdrew from her IRA.

IRS Chief Counsel Guidance in 2025

Earlier in 2025, the IRS released a Chief Counsel Advice Memorandum providing guidance on the deductibility of theft losses from financial investments. The CCA outlines five scenarios where theft losses occurred to taxpayers who had invested in IRA and non-IRA brokerage-type accounts that generally invest in securities and other financial products.

The IRS broke the five taxpayer scenarios into three categories:

1. Authorized transfers with a profit motive

   
   

   • Taxpayers who authorized distributions and transfers to new accounts directly to a scammer.

   • If they established that their motive was to transfer their investment funds from existing investment accounts to new investment accounts—either to safeguard investments or make new ones—they had a profit motive.

   • These taxpayers can deduct their theft losses.

   
   

2. Authorized transfers without a profit motive

   
   

   • Taxpayers who authorized distributions and transfers but were motivated to transfer funds to a scammer for non-investment scams.

   • There was no profit motive, and therefore the taxpayers cannot deduct their losses—at least not during TCJA years 2018 through 2025.

   
   

3. Unauthorized transfers

   
   

   • Taxpayers who did not authorize any distributions or transfers.

   • The loss does not result from the taxpayer’s actions, so the IRS looked at whether there was a profit motive in the original account from which the funds were stolen.

   
   

Fraudulent Schemes, Retirement Accounts, and Tax Relief:

Online Research Package can access the transcript here: https://spidell.com/research/spidell-federal-taxletter/podcast-transcripts/podcast-requesting-a-plr-following-a-fraudulent-transfer-from-a-retirement-account/