PLR 200644033: IRA rollover deadline waived after institution sent funds to wrong account

Plain-English summary

An individual agreed to move an investment between financial institutions, but one institution mistakenly used an IRA withdrawal form and placed the proceeds into a non-IRA mutual fund account. The error was discovered while preparing the individual's tax return, and the institution acknowledged its mistake. The IRS waived the usual 60-day rollover deadline under section 408(d)(3)(I). It gave the individual 60 days from the ruling date to contribute the full stated distribution amount to a rollover IRA. The rollover treatment depended on meeting all other applicable section 408(d)(3) requirements; the IRS gave no opinion on other tax consequences.

Ruling snapshot

• Question: Could the missed 60-day IRA rollover deadline be waived after the institution's account error?
• Outcome: Approved a waiver and a new 60-day contribution period.
• Key authorities: IRC § 408(d)(3)(I); 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

AUG 09 2006
200644033
DIVISION

Uniform Issue List: 408.03-00 SE:T:EP:RA:T1

Legend:
Taxpayer A =

IRA B =

Financial Institution C =

Financial Institution D =
Account E =
Amount 1 =
Amount 2 =

Amount 3 =

Dear

This letter is in response to a request for a letter ruling dated January 5, 2006, from 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 ("Code").

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

Taxpayer A, under age 59½, represents that he received a distribution from Individual Retirement Arrangement (“IRA”) B totaling Amount 1. Taxpayer A

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asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to mistakes by Financial Institution C. Taxpayer A further represents that Amount 1 has not been used for any other purpose.

Taxpayer A represents that in December 2004, he was contacted by a representative of Financial Institution C who suggested he switch his investments with Financial Institution D to a mutual fund, Account E, he maintained with Financial Institution C. Taxpayer A represents that the subject of his IRA with Financial Institution D was not discussed. Taxpayer A agreed to change his investment with Financial Institution D to Financial Institution C. The representative of Financial Institution C obtained and completed a withdrawal application for IRA B. Taxpayer A signed the withdrawal form on December 9, 2004. On December 11, 2004, Amount 3 (Amount 1 — Amount 2 federal tax withholding) was transferred to non-IRA Account E. The mistake was discovered during Taxpayer A’s 2004 tax return preparation. Financial Institution C has provided an acknowledgement that the transfer to a non-IRA account was its error.

Based on the above facts and representations, you request that the Service waive the 60-day rollover requirement contained in Code section 408(d)(3) with respect to the distribution of Amount 1.

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

(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)).

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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)(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 his assertion that his failure to accomplish a timely rollover was caused by an error committed by Financial Institution C.

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 1 from IRA B. 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 408(d)(3) of the Code, 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 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.

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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.

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

. Please address all correspondence to SE:T:EP:RA:T1.

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