PLR 200606054: IRA rollover deadline waived after bank opened wrong CD

Plain-English summary

A man withdrew funds from an IRA and asked a financial institution to place them in a rollover IRA certificate of deposit. The institution instead opened a regular certificate of deposit, and the mistake was discovered after the 60 day rollover deadline. The IRS found the submitted documentation consistent with an institution error and waived the deadline under section 408(d)(3)(I). The taxpayer had 60 days from the ruling letter to put the funds into a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the taxpayer complete an IRA rollover after the institution's account setup error caused a missed deadline?
• Outcome: Approved a waiver and a new 60 day contribution period.
• 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
200606054
TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
NOV 17 2005
SE:T:EP:RA:T1

Uniform Issue List: 408.03-00

Legend:
Taxpayer A = [redacted]
Bank B = [redacted]
Financial Institution C = [redacted]
Amount 1 = [redacted]
IRA X = [redacted]
Account Y = [redacted]

Dear [redacted]:

This is in response to your letter dated February 7, 2005, as supplemented by additional information dated October 6, 2005, in which you request a waiver of the 60- day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code (the “Code’”).

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

Taxpayer A, age 61, represents that he received a distribution from individual retirement arrangement (“IRA”) X totaling Amount 1. Taxpayer A asserts that his failure

to accomplish a rollover within the 60-day period prescribed by Code section 408(d) was due to a mistake made by Financial Institution C. Taxpayer A further represents that Amount 1 has not been used for any other purpose.

Taxpayer A maintained IRA X with Bank B. Taxpayer A represents that he withdrew the entire balance in IRA X, Amount 1, on October 9, [redacted] with the intention of rolling this amount into an IRA at Financial Institution C. On October 20, [redacted] Taxpayer A went to Financial Institution C, purchased a certificate of deposit (“CD”). At the Time of purchase, Taxpayer A specified that the CD was a rollover IRA CD. Taxpayer A

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maintained multiple IRA CDs at Financial Institution C. Instead of establishing another IRA CD, Financial Institution C established the new CD as a non-IRA CD in Account Y. The mistake was not discovered until after the 60-day rollover period had expired.

Based on the facts and representations presented above, you request that the Internal Revenue Service waive the 60-day rollover requirement of Code section 408(d)(3), with respect to the distribution of Amount D from IRA X.

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) 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.

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) where the failure to waive such requirement would be against equity or good conscience, including casualty,

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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).

Revenue Procedure 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 and documentation submitted by Taxpayer A is consistent with his assertion that his failure to accomplish a timely rollover was caused by errors committed by Financial Institution C.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount 1 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, Amount 1 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.

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.

lf you wish to inquire about this ruling RAEKREKEKREEEEEREEREEEERERRERERERREEREKERREREKUKEREREK
’

KERKERERERERERERKREE ER ER ERREERERKEEREREKEER EER EREERERERERERERERRERERERERERRERERERIKEREREKRERERERE

address all correspondence to SE:T:EP:RA:T1.
Sincerely yours,

Carlton A. Watkins, Manager,
Employee Plans Technical Group 1

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose (Notice 437)