PLR 200618032: Retirement plan rollover deadline waived after missing notice

Plain-English summary

After his former employer was sold, a retirement plan participant expected his account to move to the new employer's plan. Instead, he received a distribution check without instructions about rollover choices or their tax consequences, and his attempts to get an explanation failed. The IRS found the missing notice consistent with his reason for missing the 60-day rollover deadline. It granted him 60 days from the ruling to contribute all or part of the stated distribution amount to an IRA, provided the other rollover requirements were met.

Ruling snapshot

• Question: Could the participant make a late rollover of a retirement plan distribution after receiving no rollover notice?
• Outcome: Approved; a 60-day period was granted for an otherwise eligible IRA rollover.
• Key authorities: IRC § 402(c)(3)(B); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
200618032
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 10 2006

UIL #: 402.00-00

Legend:

Taxpayer A =
Amount D =
Amount F =
Plan X =

Dear

This is in response to your request dated April 5, 2005, in which you request a waiver of the 60-day rollover requirement contained in section 402(c)(3)(A) of the Internal Revenue Code (the Code).

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

Taxpayer A, age 43, represents that he received a distribution from Plan X totaling Amount F. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3)(A) was due to the failure of Plan X to provide proper notice concerning the tax consequences of Plan X distributions. Taxpayer A further represents that Amount F has not been used for any other purpose.

Upon the sale of his former employer to another company, Taxpayer A was informed that his former employer would rollover his account balance in Plan X to the new employer's plan. Instead on October 29, 2004, Taxpayer A received a check in the mail in Amount F (Amount D, the balance in Taxpayer A’s account in Plan X less federal income tax withholding) with no instructions concerning rollover options or any notice concerning the tax implications of the distribution. Taxpayer A sought clarification from his former employer but despite repeated attempts was not able to obtain any information.

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Based on his belief that his former employer was going to arrange for a rollover Taxpayer A did not cash the check for Amount F until just before the expiration date of the check when he deposited the check in his checking account. Taxpayer A then wrote to the Service requesting an extension of the 60-day rollover period.

Based on the facts and representations, you request that the Service waive

the 60-day rollover requirement with respect to the distribution of Amount D because the failure to waive such requirement would be a hardship and against equity or good conscience.

Section 403(b)(8) of the Code provides that if any portion of the balance to the credit of an employee in an annuity contract described in paragraph (i) of section 403(b) is paid to the employee in an eligible rollover distribution, and the employee transfers any portion of the property received in such distribution to an eligible retirement plan, and in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent transferred) shall not be includible in gross income for the taxable year in which paid. Section 402(c) of the Code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including IRAs. Section 403(b)(3)(A) provides that the rules of paragraphs (2) through (7) and (9) of section 402(c) shall apply for purposes of subparagraph (A). Section 402(c)(3)(A) states that such rollover must be accomplished within 60 days following the day on which the distributee received the property. An individual retirement account (IRA) constitutes one form of eligible retirement plan.

Code section 402(c)(3)(A) provides that, except as provided in subparagraph (B), paragraph (1) (which excludes rolled over amounts from gross income) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.

Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60- day requirement under section 402(c)(3)(A) 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 402(c)(3)(B) of the Code.

Section 401(a)(31)(A) of the Code provides that a trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if the

distributee of any eligible rollover distribution-

(i) elects to have such distribution paid directly to an eligible retirement plan, and

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(ii) specifies the eligible retirement plan to which such distribution is to be paid (in such form and at such time as the plan administrator may prescribe), such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified.

Section 401(a)(31)(E) of the Code provides that, for purposes of Code section 401 (a)(31), the term "eligible retirement plan" has the meaning given such term by section 402(c)(8)(B) with an exception not pertinent to this ruling request. Thus, a direct transfer defined in Code section 401(a)(31), may be made into an IRA.

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and Answer-5, provides, in relevant part, that a direct rollover described in Code section 401(a)(31) is a distribution and rollover of the eligible rollover distribution and not a transfer of assets and liabilities. Thus, for example, the consent and requirements of Code sections 401(a)(11), 411(a)(11), and 417 apply to transactions described in Code section 401(a)(31).

Revenue Procedure 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 402(c)(3)(B), 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 rollover within the 60- day period prescribed by section 402(c)(3)(A) was due to the failure of Plan X to provide proper notice concerning the tax consequences of Plan X distributions.

Thus, Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount D, or any portion thereof, to an IRA. Provided all other requirements of section 402(c) of the Code, except the 60-day requirement, are met with respect to such contributions, the contributed amounts will be considered rollover contributions within the meaning of section 402(c) 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.

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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 , I.D. #
, at
. Please address all correspondence to
SE:T:EP:RA:T3.

Sincerely yours,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted copy of letter ruling
Notice of Intention to Disclose