PLR 200542038: Broker's failure to transfer stock earns IRA rollover relief

Plain-English summary

An IRA owner withdrew money and bought stock, then instructed a broker to move the shares into a newly opened IRA. The stock certificate identified the owner with the letters “IRA,” but the broker did not complete the transfer. The owner discovered the error after the ordinary 60 day rollover period. The IRS waived that deadline because the broker's failure caused the missed rollover and gave the owner 60 days from the ruling date to contribute an amount equal to the withdrawn sum to another IRA. All other rollover requirements still apply.

Ruling snapshot

• Question: Could the owner complete a late IRA rollover after the broker failed to transfer the purchased stock as instructed?
• Outcome: Approved as to the deadline, with 60 days from the letter to contribute the amount.
• Key authorities: IRC § 408(d)(3)(I); 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
JUL 28 2005
200542038
SE:T:EP:RA:T3

Uniform Issue List: 408.03-00

Legend:
Taxpayer A =
Amount B =

IRA X =

Company C =
Company D =
Company E =
Dear [redacted]:

In letters dated November 10, 2004, and January 13, 2005, your authorized representative 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:

Taxpayer A maintains IRA X. On July 3, [redacted] Taxpayer A faxed to Company C an IRA X withdrawal form and shortly thereafter received an Amount B check. After consulting with a representative at Company D, Taxpayer A purchased [redacted] shares of Company E stock on July 9, [redacted] with a purchase price of Amount B, and instructed Company D to transfer those shares into a Simple IRA account that he had opened with Company D. The Company E stock certificate indicated Taxpayer A’s name followed by the letters “IRA” as owner. However, contrary to Taxpayer A's instructions, Company D never transferred the stock to his Simple IRA account. The taxpayer discovered the broker

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error when he received a notice from the Internal Revenue Service dated September 20, 2004.

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 B 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.

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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 on behalf of Taxpayer A indicates that Taxpayer A relied upon the services of Company D to accomplish a rollover of Company E stock held under Taxpayer A’s name followed by the letters “IRA”. Taxpayer A instructed Company D to rollover Company E stock into a new Simple IRA in a timely manner. Company D’s error in not following the request of Taxpayer A caused Taxpayer A’s failure to make a rollover of Amount B within the requisite 60 days.

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 B. 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 B 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.

A copy of this letter has been sent to your authorized representative in accordance with a Power of Attorney on file in this office.

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If you wish to inquire about this ruling, please contact [redacted], I.D. [redacted] at [redacted] 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