PLR 200603034: Surviving spouse may roll over unused IRA funds after account mistake

Plain-English summary

A surviving spouse inherited an annuity IRA and relied on a financial institution's guidance about moving the money. The institution placed the funds in an account that was not an IRA, and the spouse later used part of the money for medical and personal expenses. The IRS found that miscommunication with the institution and reliance on its expertise caused the missed 60-day rollover deadline. It waived the deadline for the unused balance only and gave the spouse 60 days from the ruling date to contribute that balance to a rollover IRA. All other rollover requirements still apply.

Ruling snapshot

• Question: Could the surviving spouse roll the unused balance into an IRA after the institution placed the inherited funds in a non-IRA account?
• Outcome: Approved a 60-day extension for the unused balance.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200603034

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

OCT 28 2005

Uniform Issue List: 408.03-00

Legend:
Taxpayer A =
Taxpayer B =

IRA C =

Amount D =
Amount E =
Amount F =
Amount G =

Account H =

Financial Institution I =

Dear

This letter is in response to a request for a letter ruling dated August 25, 2005, as supplemented by additional information dated October 6, 2005, October 13, 2005, and

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October 17, 2005, from your authorized representative, in which you have applied for a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code ("Code").

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

Taxpayer A, age 64, represents that she received a distribution from annuity IRA C totaling Amount D. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to a misunderstanding with Financial Institution I which led to Amount D being placed in a non-IRA account.

Taxpayer A’s spouse, Taxpayer B, maintained annuity IRA C with Financial Institution I.
Taxpayer A was the beneficiary of IRA C. Taxpayer B died on July 4, [redacted]. During [redacted], Taxpayer A had several discussions with service representatives of Financial Institution I regarding her options as beneficiary of IRA C. Taxpayer A was in poor health and was concerned about future medical expenses. Taxpayer A represents that Financial Institution I indicated that they “would take care of everything”. It was recommended that Taxpayer A transfer IRA C to Account H. Taxpayer A represents that she did not understand her rollover options but relied on the expertise of Financial Institution I. A direct transfer was completed on June 11, [redacted], of Amount D, from IRA C to Account H. Later during [redacted], Taxpayer A withdrew Amount E from Account H to pay medical expenses. During the [redacted] tax year, Taxpayer A withdrew Amount F from Account H to be used for medical and other personal expenses. In early [redacted], during tax preparation, Taxpayer A was informed that Account H was a non-IRA account.

Based on the above facts and representations, you request that the Internal Revenue Service (“Service’’) waive the 60-day rollover requirement contained in Code section 408(d)(3) with respect to the distribution of Amount G (Amount D — Amounts E and F).

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 -

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(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.

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 (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 and the documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover was caused by a miscommunication with service representatives of Financial Institution I and Taxpayer A’s reliance on their expertise.

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Therefore, pursuant to Code section 408(d)(3)(I), the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount G from IRA C. The Taxpayer is granted a period of 60 days from the issuance of this ruling letter to contribute Amount G into a Rollover IRA. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, Amount G will be considered a rollover contribution within the meaning of 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 ruling has been sent to your authorized representative pursuant to a power of attorney on file in this office. If you wish to inquire about this ruling, please

contact
, SE:T:EP:RA:T1, I.D. [redacted], at [redacted].

Sincerely yours,

Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437
cc: