PLR 200401020: IRS waives IRA rollover deadline after bank withdrawal error

Plain-English summary

A taxpayer asked a bank to withdraw money from a brokerage account to buy a home, but the bank took it from his IRA instead. He learned of the error after the normal 60 day rollover window had closed. The IRS found the bank error was beyond his reasonable control and waived the deadline under section 408(d)(3)(I). It gave him 60 days from the ruling letter to return the money to the IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Can the taxpayer receive a waiver of the 60 day IRA rollover deadline after the bank withdrew from the wrong account?
• Outcome: Approved: the IRS waived the deadline and allowed 60 days from the letter to redeposit the amount.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
200401020
INTERNAL REVENUE SERVICE
WASHINGTON D.C. 20224

Uniform Issue List: 408.03-00

OCT - 8 2003

[illegible handwritten notation]

Legend:
Taxpayer A=
Amount B=
IRA C=
Bank D=

Dear :

This is in response to your request of June 11, 2003, through your authorized representative, for a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code (the Code).

The following facts and representations have been submitted under penalty of perjury in support of the ruling requested:

Taxpayer A was divorced during 2002. During June 2002, Taxpayer A called Bank D to request a transfer of funds from one of his brokerage accounts to his personal checking account. Amount B was to be used to purchase Taxpayer A’s primary residence. Bank D did not notify Taxpayer A that Amount B was being disbursed from IRA C nor was any form providing any options or explanations (such as rollovers) given to Taxpayer A on the withdrawal from IRA C.

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Upon receiving Form 1099-R reflecting Amount B, Taxpayer A realized that an error had occurred on the distribution requested and called Bank D to notify them of the mistake. Bank D has been unable to determine how the instructions received and executed generated the incorrect withdrawal. At the time of the withdrawal, Taxpayer A was recently divorced and intended to withdraw Amount B from another brokerage account other than from IRA C to purchase a residence.

Taxpayer A never intended to use IRA C for the withdrawal of Amount B as he was aware that a redeposit was necessary within the 60 day period allowed by the Internal Revenue Code (the Code) to avoid any adverse tax consequences.

Taxpayer A received an erroneous distribution from IRA C and when the error was discovered, the 60 day rollover period had expired.

Taxpayer A proposes to redeposit Amount B to IRA C.

Taxpayer represents that no other amount was distributed from IRA C within the one year period since the original distribution.

Based on the above facts and representations, you request that the Service waive the 60-day rollover requirement with respect to the distribution of Amount B because the failure to waive such requirement would be against equity or good conscience.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d), any amount paid or distributed out of an IRA shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72 of the Code.

Section 408(d)(3) of the Code defines, and provides the rules applicable to IRA rollovers.

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) of the Code does not apply to any amount paid or distributed out of an IRA to the individual for whose benefit the IRA is maintained if—

(i) the entire amount received (including money and any other property) is paid into an IRA for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution; or

(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan (other than an IRA) for the benefit of such individual not later than the 60th day after the date on which the payment or

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distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to section 408(d)(3)).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) does not apply to any amount described in section 408(d)(3)(A)(i) received by an individual from an IRA if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in section 408(d)(3)(A)(i) from an IRA which was not includible in gross income because of the application of section 408(d)(3).

Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for partial rollovers.

Section 408(d)(3)(I) of the Code provides that the Secretary may waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) of the Code 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. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of the Code.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359, provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I), the Service will consider all relevant facts and circumstances, including: (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.

The information presented by Taxpayer A demonstrates that an error occurred with Bank D that resulted in IRA C being debited for amount B instead of another brokerage account owned by Taxpayer A in Bank D. The failure to redeposit Amount B into IRA C within the 60-day period was due to bank errors and beyond the reasonable control of Taxpayer A, and the failure to waive the 60-day requirement would be against equity or good conscience.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount B into IRA C. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day requirement, are met with respect to such contributions, these amounts will be considered rollover contributions within the meaning of section 408(d)(3) of the Code.

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No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations which may be applicable thereto.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

If you wish to inquire about this ruling, please contact , , at . Please address all correspondence to .

Sincerely yours,

[illegible]
for Manager, Technical Group 4
Employee Plans

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

Cc: