PLR 200635012: IRS waives late IRA rollover deadline after agent withdraws from wrong annuity

Plain-English summary

A 78-year-old taxpayer asked for relief after a financial institution's agent withdrew money from her IRA annuity when she thought she was using a non-IRA annuity. Her impaired vision kept her from reading the statements, and she learned of the IRA withdrawal while preparing her taxes. She used some money to help her disabled son and repair her home, and invested the balance. The IRS waived the 60-day rollover deadline under § 408(d)(3)(I) and allowed 60 days from the letter's issuance to contribute to a rollover IRA, subject to the other rollover requirements. The request names the invested balance, Amount D, while the ruling names the full distribution, Amount A; the letter does not explain this difference. Required minimum distributions under § 401(a)(9) remain excluded.

Ruling snapshot

• Question: Can the taxpayer receive a waiver of the 60-day IRA rollover deadline after the wrong annuity was tapped?
• Outcome: Approved, subject to the other rollover rules and the letter's stated amount.
• Key authorities: IRC §§ 408(d)(3), 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

Department of Treasury
Internal Revenue Service
Washington, D.C. 20224
200635012
T:EP:RA:T3

Uniform Issue List: 408.03-00

JUN - 5 2006

Legend:
Taxpayer A =

IRA X

Amount A =

Amount B =
Amount C =

Amount D =

Financial Institution M =
Investment Department W =

Customer Service Department B =

Dear
:

This is in response to your request dated October 17, 2005, and May 16, 2006, submitted on your behalf by your authorized representative, 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”).

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

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Taxpayer A, age 78, represents that she received a distribution from IRA X totaling Amount A. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to errors in communication with the Customer Service Department B of Financial Institution M in which Taxpayer A maintained her IRA X.

Taxpayer A maintained two annuities through Financial Institution M, an IRA annuity and a non-IRA annuity, which had almost identical values. In January 2004, Taxpayer A approached Customer Service Department B to withdraw funds to help her disabled son and to make repairs to her home. Customer Service Department B arranged for her withdrawal of Amount A in January 2004. Taxpayer A used Amount B to help her disabled son and Amount C for home repairs. The balance, Amount D, was invested in Portfolio C at Investment Department W. At the time of the withdrawal from IRA X, due to vision disability, Taxpayer A could not read the statements and mistakenly believed she was withdrawing funds from her non-IRA account. Taxpayer A is a senior citizen who had been relying on Customer Service Department B for many years to maintain her IRA. At the time of the withdrawal, her regular contact agent was unavailable and the new contact agent inadvertently withdrew funds from an IRA instead of her regular non-IRA account, which was otherwise available to her for living expenses.

Taxpayer A did not become aware of her IRA distribution until she was informed by her tax preparer in the process of filing her federal year income taxes.

Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60 day rollover requirement with respect to the distribution of Amount D contained in section 408(d)(3) of the Code in this instance.

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 which the individual receives the payment or distribution; or

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(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 documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover was caused by miscommunication with the Customer Service Department B of Investment Department W.

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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 A from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount A 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, the contribution of Amount A into an IRA will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

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 has been sent to your authorized representative in accordance with a Power of Attorney on file in this office.

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