PLR 200443046: IRA rollover deadline waived after broker failed to complete transfer

Plain-English summary

An IRA owner asked her broker to move funds into another IRA through a purchase of U.S. securities. The broker did not verify the rollover requirements or tell her that an authorized IRA custodian was needed. She later learned that the funds were in a non-IRA account after the usual 60-day rollover deadline had passed. The IRS waived that deadline and gave her 60 days from the ruling letter to contribute the original amount plus the interest it had earned to an IRA. The ruling depended on all other IRA rollover requirements being met.

Ruling snapshot

• Question: Could the taxpayer complete an IRA rollover after missing the 60-day deadline because of the broker's failure?
• Outcome: Approved; the deadline was waived and a new 60-day period was granted for the original amount and interest.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200443046

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 29 2004

Uniform Issue List: 408.03-00

SE:T:EP:RA:T3

Legend:

Taxpayer A =

Amount D =

Amount E =

Federal Instrumentality T =
Credit Union O =

Broker S =

Dear

In letters dated February 2, 2004, May 20, 2004, and June 29, 2004, you requested 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:

On October 1, Taxpayer A, wrote Broker S and requested that Amount D be withdrawn from her Individual Retirement Account (IRA), to purchase certain United States securities which were to be deposited into another IRA at Federal Instrumentality T as a rollover contribution. However, Broker S did not inform Taxpayer A that the United States Treasury Department (“Treasury Department”), the parent agency of Federal Instrumentality T, required an authorized IRA custodian to hold Taxpayer A's Amount D. Broker S also did not verify whether the transaction, which consisted of transferring Amount D to the Treasury Department was a valid IRA rollover. Taxpayer A believed that Amount D had been rolled over into another IRA. However, from a statement showing that non-IRA interest income had been distributed from Federal instrumentality T and received by Credit Union O on her behalf, Taxpayer A discovered

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after the expiration of the 60-day rollover period that Amount D had not been deposited in an IRA at Federal Instrumentality T but instead was being held in a non-IRA account at Federal Instrumentality T. Taxpayer took action to determine why Amount D had not been rolled over into another IRA, and then contacted the Internal Revenue Service requesting relief from the failure to meet the 60-day rollover requirement.

Based on the facts and representations, you request that the Internal Revenue Service waive the 60-day rollover requirement with respect to the distribution of Amount D because the failure to waive such requirement would be a hardship and against equity or good conscience. Additionally, you request that the ruling also authorize you to place Amount E, the interest earned on Amount D during the period that Amount D has been in a non-IRA account with Federal Instrumentality T, into an IRA set up and maintained in your name.

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 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).

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

Code section 408(a)(6) provides, in general, that rules similar to the rules of section 401(a)(9) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained.

Code section 408(d)(3)(E) provides that paragraph 408(d)(3) shall not apply to any amount to the extent such amount is required to be distributed under subsection (a)(6).

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.

Revenue Procedure 2003-16, 2003-4 I.R.B. 359, (January 27, 2003) 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 a failure on the part of Taxpayer A to roll over Amount D into an IRA. Taxpayer A relied on Broker S to carry out her directions to accomplish a rollover of Amount D. Broker S failed to advise Taxpayer A that Amount D was not deposited as a rollover into another IRA at Federal Agency T.

Therefore, pursuant to Code section 408(d)(3)(I), the Service hereby waives the 60-day rollover requirement with respect to the withdrawal of Amount D. Pursuant to this ruling letter, Taxpayer A is granted a period of 60 days measured from the date of the issuance of this letter ruling to make a rollover contribution of an amount equal to Amount D plus Amount E, the interest accrued on Amount D, to another IRA (or IRAs) described in Code section 408(a). Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, are met with respect to such IRA contribution, the contribution will be considered a rollover contribution within the meaning of Code section 408(d)(3).

No opinion is expressed as to the tax treatment of the transaction described herein

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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 I.D. # at Please address all correspondence to SE:T:EP:RA:T3.

Sincerely yours,

/s/

Frances V. Sloan, Manager
Employee Plans Technical Group 3

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