PLR 200551026: Broker's account error led to IRA rollover deadline waiver

Plain-English summary

A taxpayer asked a broker to withdraw money from a personal account. The broker instead took it from the taxpayer's IRA, and the taxpayer learned of the mistake only after receiving a Form 1099, beyond the ordinary 60-day rollover period. The money remained in the personal account. The IRS waived the missed rollover deadline under § 408(d)(3)(I), citing the broker's error. The taxpayer had 60 days from the ruling letter to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could an IRA withdrawal from the wrong account be rolled over after the usual deadline?
• Outcome: Approved. The IRS waived the 60-day deadline for the stated amount.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200551026

SEP 26 2005

Uniform Issue List: 408.03-00

Legend:
Taxpayer A=
Amount B=

IRA C=

Broker D=
Date 1=

Date 2=

Dear

This is in response to your request dated March 4, [redacted], 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:

200551026

Page 2

Taxpayer A, age [redacted], represents that she received a distribution from IRA C totalling Amount B. Taxpayer A asserts that [redacted] failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to a mistake made by Broker D.

Taxpayer A maintained a personal account and IRA C with Broker D. On Date 1 Taxpayer A called an authorized agent of Broker D to request a distribution of Amount B from [redacted] personal account. The requested distribution was timely completed by Broker D. However, Taxpayer A did not learn that the money had been taken out of IRA C, instead of [redacted] personal account, as [redacted] had requested, until [redacted] received a Form 1099 on Date 2 which was after the 60-day rollover period. Taxpayer A was unaware of

Broker D’s mistake and Broker D stated that [redacted] does not understand why Amount B was distributed from IRA C instead of from Taxpayer A’s personal account. Amount B has remained in Taxpayer A’s personal account.

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.

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)).

Page 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 is consistent with [redacted] assertion that [redacted] failure to accomplish a timely rollover was caused by Broker D’s failure to distribute Amount B from IRA C instead of from Taxpayer A’s personal account with Broker D, as [redacted] had requested. Taxpayer A did not become aware of Broker D’s mistake until after the 60- day rollover period had expired.

Therefore, pursuant to section 408(d)(3)(1) 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 a Rollover IRA. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day requirement, are met with respect to such contribution, this amount will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

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.

200551026

Page 4

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 [redacted], at
[redacted]. Please address all correspondence to [redacted].

Sincerely yours,

[signature]
[redacted], Manager
Employee Plans Technical Group 4

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