PLR 200616044: IRS waives IRA rollover deadline after confusing online transfer

Plain-English summary

A 75-year-old IRA owner tried to switch mutual funds through her financial institution's website but instead moved the money to an account outside her IRA. She said the transfer screens gave no warning, the account numbers stayed the same, and she learned of the mistake when she contacted the institution about her required minimum distribution. The IRS accepted that the confusion caused her to miss the 60-day rollover deadline and waived that deadline under section 408(d)(3)(I). The waiver applies only if all other rollover requirements are met. It does not allow her to roll over any amount that must be distributed under the required minimum distribution rules.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day deadline for rolling over an inadvertent IRA distribution?
• Outcome: Approved, if the other rollover requirements are met.
• Key authorities: IRC §§ 408(d)(3), 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JAN 25 2006

200616044

T:EP:RA:T1

Uniform Issue List: 408.03-00

Legend:
Taxpayer A =

IRA B =

Amount C =
Financial Institution D =
Mutual Fund E =
Mutual Fund F =

Account G =

Dear
:

This letter is in response to a request for a letter ruling dated November 18, 2005, as supplemented by additional information dated December 21 and 28, 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")

regarding a distribution from an individual retirement account (IRA B) under section 408(a).

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

Taxpayer A, age 75, represents that she received a distribution from IRA B totaling Amount C. 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 confusion caused when she attempted to change investments within IRA B utilizing Financial Institution D’s online website. Taxpayer A further represents that Amount C has not been used for any other

purpose.

Taxpayer A maintained IRA B, an Individual Retirement Account (“IRA”) under Code section 408(a). Taxpayer A represents that she wanted to change investments within IRA B by utilizing the internet website of Financial Institution D. On , Taxpayer A accessed her IRA account online and transferred her entire balance in IRA B from Mutual Fund E to Mutual Fund F. Taxpayer A represents that she believed the transfer was between mutual funds within IRA B and because there was neither a confirmation of the transfer nor a warning that the transfer was to a non-IRA account, she was unaware that the transfer was being treated as a distribution from IRA B. Documentation submitted by Taxpayer A demonstrated the complexity of the transfer screens and the ability to transfer IRA funds to a non-IRA account in one step without a corresponding warning that funds are being transferred from an IRA account to a non- IRA account. Confusion also resulted from the fact that the account numbers remained the same with only a change in the Fund number. Taxpayer became aware of the mistake when she contacted Financial Institution D, in , to take her required minimum distribution.

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 C.

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

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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)(E) of the Code provides that the rollover provisions of section 408(d) do not apply to any amount required to be distributed under section 408(a)(6).

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 her confusion in attempting to change investments within IRA B utilizing the online website of Financial Institution D.

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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 C from IRA B. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, Amount C will be considered a rollover contribution within the meaning of section 408(d)(3).

This ruling does not authorize the rollover of amounts that are required to be distributed by section 401(a)(9) 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.

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

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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