PLR 200445029: Rollover deadline waived after firm put IRA transfer in wrong account

Plain-English summary

A taxpayer directed a financial firm to transfer funds from one IRA to a traditional IRA at the firm. The firm instead placed the funds in an account that was not an IRA, and the taxpayer discovered the error after the 60-day rollover period expired. The IRS granted a waiver under section 408(d)(3)(I), finding that the taxpayer had relied on the firm to complete the transfer and that its error prevented a timely rollover. The taxpayer received 60 days from the ruling's issuance to contribute an amount equal to the misplaced funds to one or more IRAs, provided the other rollover rules were met.

Ruling snapshot

• Question: Would the IRS waive the IRA rollover deadline after a financial firm put the transfer in a non-IRA account?
• Outcome: Approved.
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

200445029
AUG 9 2004

Uniform Issue List: 408.03-00
SE:T:EP:RA:T3

Legend:
Taxpayer A =
Amount D =
IRA V =
IRA F =
Financial Firm F =
Company E =

Dear

In a letter dated April 13, 2004, as supplemented by correspondence dated July 5, 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 January 4, Taxpayer A authorized a transfer of Amount D from his Individual Retirement Account (IRA), IRA V, maintained with Company E, to IRA F, an individual retirement account set up by Taxpayer A with Financial Firm F, by way of a Financial Firm F asset transfer authorization form. Said form specifically provided that IRA V was to be placed in a “Traditional IRA”. On January 10, , Financial Firm F advised Taxpayer A that it had forwarded his transfer form to Company E.

Financial Firm F, sometime after January 10, , received Amount D and placed the funds into a non-IRA account instead of an IRA account.

On May 7, , Taxpayer A noticed for the first time that Amount D was in a non-IRA account. Taxpayer immediately contacted Financial Firm F and after consulting with Financial Firm F’s attorneys, Taxpayer A began seeking assistance from the Internal Revenue Service.

Taxpayer A was advised by Financial Firm F that a letter from the Internal Revenue Service granting a waiver is necessary before Amount D may be rolled over into IRA F.

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.

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).

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 reliance on Financial Firm F to accomplish the rollover of Amount D distributed from IRA V as the parties had agreed. Furthermore, the facts presented show that because of the failure of Financial Firm F to correctly place Amount D into the proper IRA account, Taxpayer A was unable to accomplish a timely rollover. By the time Taxpayer A realized the mistake the 60-day rollover period had expired.

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, 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 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,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

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