PLR 200625040: Credit union error qualifies for late retirement rollover relief

Plain-English summary

A taxpayer asked a credit union to roll a distribution from a tax sheltered annuity into an IRA. Although she completed IRA rollover forms, the credit union opened a regular savings account instead. The IRS found that the institution's error caused her failure to meet the 60-day rollover deadline and waived that deadline. It gave her 60 days from the ruling to put the distribution into a rollover IRA. The amount will count as a rollover if the other requirements of section 408(d)(3) are met.

Ruling snapshot

• Question: Can a taxpayer receive more time for a retirement rollover when a credit union mistakenly opened a savings account instead of an IRA?
• Outcome: Approved, with 60 days to contribute the amount to a rollover IRA.
• Key authorities: IRC §§ 402(c)(3), 403(b)(8), 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

200625040

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAR 28 2006
Uniform Issue List: 402.00-00
T:EP:RA:4K

Legend:

Taxpayer A =

TSA B=

Amount D =
Financial Advisor C =
Account T =

Credit Union T =

Dea

This is in response to your letter dated October 7, 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), as applicable to an annuity described in Code section

403(b) pursuant to Code section 403(b)(8)(B).

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

Taxpayer A, age 43, represents that a distribution from TSA B, a tax shelter annuity retirement account, totaling Amount D was directly rolled over into Account T established at Credit Union T. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3)(A) was due to error on the part of Credit Union T.

On July 30, 2002, Taxpayer A opened Account T with the help of Financial Advisor C at Credit Union T. Taxpayer A stated that she intended to open a rollover individual retirement account (IRA). Taxpayer A and Financial Advisor C completed IRA rollover application forms, which indicated she was completing a rollover of Amount D. It was not until September 13, 2005, that Taxpayer A learned from Credit Union T that Account T was set up as a regular savings account and not an IRA as Taxpayer A intended. A

200625040

manager at Credit Union T then informed Taxpayer A to write to the Internal Revenue Service to correct the error of Credit Union T.

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.

With respect to your request to waive the 60 day rollover requirement, section 403(b)(1)(E) of the Code provides, in relevant part, that any amount distributed out of an annuity contract described in section 403(b)(1) shall be taxable to the distributee, in the taxable year of the distributee in which distributed, in the manner provided under section 72 of the Code (relating to annuities).

Code section 403(b)(8)(A) provides that if any portion of the balance to the credit of an employee in a 403(b) annuity contract is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)), and the employee transfers any portion of the ‘distribution to an eligible retirement plan described in section 402(c)(8)(B), then the distribution to the extent transferred shall not be includible in gross income for the taxable year in which it was distributed.

Section 402(c)(8) defines an eligible retirement plan for purposes of subsection (c) as including an IRA described under section 408(a).

Section 403(b)(8)(B) provides that rules similar to the rules of paragraphs (2) through (7) and (9) of section 402(c) shall apply for purposes of section 403(b)(8)(A).

Section 403(b)(10) provides, in relevant part, that any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of the transfer.

Section 402(c) of the Code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans including IRAs.

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 (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

200625040

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 an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover is not currently includible in the distributee’s gross income under section 402(c) and is exempt from the 20-percent withholding imposed under section 3405(c)(2) of the Code. ,

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and Answer-15, 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).

Code section 402(c)(3)(A) provides that, except as provided in subparagraph (B), paragraph (1) 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.

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 her assertion that her failure to accomplish a timely rollover was caused by the error of Credit Union T in creating a regular savings account when it should have

created a rollover IRA account.

Thus, based on the above, pursuant to Code section 402(c)(3)(B), the Service hereby waives the 60-day rollover period found in Code section 402(c)(3)(A). As a result Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount D 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 D 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.

If you wish to inquire about this ruling, please contact I.D. #22
_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