PLR 200608031: IRA rollover deadline waived after bank opens wrong account

Plain-English summary

A retiree withdrew money from an IRA to move it into an IRA certificate of deposit at another financial institution. A misunderstanding with its representative led to the money being placed in an account that was not an IRA. After discovering the mistake several months later, he returned the distributed amount plus earnings to his original IRA. The IRS waived the 60-day rollover deadline under section 408(d)(3)(I). The distributed amount would count as a rollover contribution if the other rollover requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a waiver after a misunderstanding caused an IRA distribution to be deposited into a non-IRA account?
• Outcome: Approved a waiver for the distributed amount already returned to the IRA, subject to other rollover requirements.
• 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 NOV 30 2005

GOVERNMENT ENTITIES
DIVISION

SE:T:EP:RA:T1

Uniform Issue List: 408.03-00

Legend:

Taxpayer A.................................
IRA X..........................................
Amount P....................................
Financial Institution M....................
Financial Institution N.....................

Dear [illegible]:

This is in response to a letter dated March 22, 2005, as supplemented by correspondence dated June 23, 2005, and August 13, 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 submitted the following facts and representations under penalties of perjury in support of your request.

Taxpayer A, age 63, represents that he received a distribution from IRA X totaling Amount P. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to a misunderstanding that led to Amount P being placed into a non-IRA account. Taxpayer A further represents that Amount P has not been used for any purpose other than the intended rollover.

On Taxpayer A’s retirement in 2003, Taxpayer A’s savings in a 401(k) account

with his former employer were rolled over to IRA X. In order to receive a higher

rate of return, on January 20, 2004, Taxpayer A withdrew Amount P from IRA X

with Financial Institution M for the purpose of rolling Amount P over to an IRA CD with Financial Institution N. However, on February 10, 2004, Taxpayer A met

with a representative of Financial Institution N to accomplish the rollover at which time there was a misunderstanding as to what type of account should be opened. Amount P was placed in a non-IRA rather than an IRA account with Financial

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Institution N. Taxpayer A realized his mistake in May of 2004 and deposited Amount P (plus earnings) back into IRA X on May 19, 2004.

Based on the above facts and representations, Taxpayer A requests that the Internal Revenue Service (the “Service”) waive the 60-day rollover requirement under section 408(d)(3) of the Code with respect to the distribution of Amount P.

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.

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, 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).

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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) of the Code, 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 and documentation submitted by Taxpayer A is consistent with his assertion that he intended to roll over Amount P into another IRA but he

inadvertently placed Amount P into a non-IRA account. A few months later, as soon as he realized his mistake, Taxpayer A placed Amount P back into IRA X.

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 P from IRA X. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, Amount P 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 that 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 [illegible].

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted copy of letter ruling
Notice 437