PLR 200615028: Administrative delays justify waiver for completed IRA rollover

Plain-English summary

An IRA owner directed money from one IRA toward a limited partnership investment that she expected to hold through an IRA. The first custodian later said the investment could not remain in that account and would be treated as a distribution. A broker and another financial institution delayed moving the investment into a new IRA beyond the usual 60-day limit. The IRS found the submitted evidence consistent with those administrative problems and waived the deadline. Because the owner had completed the transfer to a new IRA, the amount would count as a rollover if the other requirements were met.

Ruling snapshot

• Question: Would administrative delays at financial institutions prevent a completed IRA transfer from qualifying as a rollover?
• Outcome: Approved, subject to the other rollover requirements.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE 200615028

WASHINGTON, D.C. 20224

JAN 18 2006

Uniform Issue List: 408.03-00

[illegible handwritten notation]

Legend:
Taxpayer A

IRA B

IRA C

Amount D

Financial Institution E
Company F

Financial Institution G
Financial Institution H

Broker I

Dear

This letter is in response to a request for a letter ruling dated August 11, 2005, as supplemented by additional information dated September 13, 2005, and October 31, 2005, from your authorized representative, in which you have applied for a waiver of the

200615028

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 48, represents that she received a distribution from IRA B totaling Amount D. Taxpayer A asserts that her failure to accomplish a rollover within the 60- day period prescribed by Code section 408(d)(3) was due to administrative problems she encountered in her dealings with Financial Institutions E, G, and H. Taxpayer A further represents that Amount D has not been used for any other purpose.

In Broker I, a registered representative with Financial Institution H, approached Taxpayer A about purchasing a limited partnership investment in Company F, using assets from IRA B, held by Financial Institution E. Broker I indicated that he had other clients that had invested their IRA assets, held by Financial Institution E, in Company F. On Taxpayer A signed a “Subscription Agreement” with Company F for an investment of Amount D. The “Subscription Agreement” designated the form of ownership as “Taxpayer A’s IRA”. On Financial Institution E made a disbursement of Amount D to Company F. The check was designated “FBO Taxpayer A” and mailed directly to Company F. Sometime in September, , Financial Institution E informed Taxpayer A that such investment could not be held by IRA B and would be treated as a premature distribution for . Taxpayer A immediately contacted Broker I who advised Taxpayer A that she should deposit the investment in an IRA sponsored by Financial Institution G. Due to delays caused by Broker I, Financial

Institution G did not receive the transfer request until Because of further delays caused by Financial Institution G, the transfer from Company F was not

completed until when they were deposited in IRA C.

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 D.

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 administrative problems by Financial Institutions E, G, and H.

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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 D from IRA B. Taxpayer A completed a rollover of Amount D into IRA C on

Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, Amount D 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. , at

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

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

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