PLR 200643004: Bank account error earns pension rollover deadline waiver

Plain-English summary

A former employee directed benefits from two qualified plans into an IRA at a bank. Her paperwork identified the new account as an IRA, but the bank mistakenly opened it as a regular brokerage account. The error came to light when she tried to move the funds to another custodian, and the bank acknowledged its mistake. The IRS waived the 60 day rollover deadline under section 402(c)(3)(B) and gave her 60 days from the ruling to contribute the amount to a rollover IRA. The ruling conditioned rollover treatment on meeting the other section 402(c)(3) requirements.

Ruling snapshot

• Question: Could the missed rollover deadline be waived after the bank opened a non IRA account despite IRA paperwork?
• Outcome: Approved; the IRS granted a waiver and 60 days to complete the rollover.
• Key authorities: IRC §§ 401(a)(31), 402(c)(3)(B); Rev. Proc. 2003-16.

Full text (IRS public release)

200643004

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 31 2006

Uniform Issue List: 402.00-00

T:EP:RA:T1

Legend:
Taxpayer A =
Company B =

Plan C =
Plan D =

Bank E =
Account F =
Amount 1 =
Dear

This letter is in response to a request for a letter ruling dated July 26, 2005, as supplemented by additional information dated February 7 and June 2, 2006, from your authorized representative, in which you have applied for a waiver of the 60-day rollover requirement contained in section 402(c)(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 58, represents that she received distributions from Plan C and Plan D (Plans C&D) totaling Amount 1. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) was due to a mistake by Bank E which led to Amount 1 being placed into a non-IRA account. Taxpayer A further represents that Amount 1 has not been used for any other purpose.

Taxpayer A participated in Plans C&D maintained by Company B. Plans C&D are qualified plans under section 401(a) of the Code. On September 29, 2003, Taxpayer A terminated her

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employment with Company B, which entitled her to elect distributions from Plans C&D. On October 8, 2003, Taxpayer A completed a form electing a direct rollover of her benefits under Plans C&D into an IRA with Bank E. On October 27, 2003, Bank E received a distribution check from the Bank E trust account of Company B, in Amount 1, representing a distribution of Taxpayer A’s benefit in Plans C&D. On November 20, 2003, Taxpayer A completed paperwork with Bank E to open an IRA brokerage account. The documentation submitted by Taxpayer A clearly designates the Account F as an IRA, however, Bank E mistakenly opened Account F as a non-IRA account. On November 21, 2003, Amount 1 was deposited into Account F. The mistake was discovered in 2004 when Taxpayer A attempted to rollover her benefit with Bank E to another custodian and was told that Account F was a non-IRA account. Bank E has submitted this request for a waiver of the 60-day period on behalf of Taxpayer A and has indicated it was their mistake.

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 402(c)(3) with respect to the distribution of Amount 1.

Section 402(c) of the Code provides that if any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, and the distributee 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)(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.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary may waive the 60-day requirement under sections 402(c) 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) provides the rules for governing “direct transfers of eligible rollover distributions”.

Section 1.401(a)(31) of the Income Tax Regulations, Question and Answer-15, provides, in relevant part, that an eligible rollover distribution that is paid to an eligible retirement

plan in a direct rollover is a distribution and rollover, and not a transfer of assets and liabilities.

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 402(c)(3) of the Code, 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

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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 due to a mistake made by Bank E.

Therefore, pursuant to Code section 402(c)(3)(B), the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from Plans C and D. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount 1 into a Rollover IRA. Provided all other requirements of section 402(c)(3), except the 60-day requirement, are met with respect to such contribution, Amount 1 will be considered a rollover contribution within the meaning of section 402(c)(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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