PLR 200647032: Custodian's account error earns IRA rollover waiver

Plain-English summary

An IRA owner requested a direct transfer to another IRA, but the receiving company placed the funds in a non-IRA account after a delayed transfer. She discovered the error later, and the funds remained in that account without activity other than earnings. The IRS found that the company's mistake caused the failure to meet the 60-day rollover deadline and that her documents showed an intent to move the funds directly between IRAs. It waived the deadline for the specified distribution and gave her 60 days from the ruling's issuance to contribute the amount to a rollover IRA. The favorable treatment still depended on meeting the other section 408(d)(3) rollover requirements.

Ruling snapshot

• Question: Would the IRS waive the 60-day IRA rollover deadline after the custodian deposited the funds into a non-IRA account?
• Outcome: Approved; 60 days from issuance to contribute the amount, subject to all other rollover rules.
• Key authorities: IRC § 408(d)(3)(A), (D), (I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
200647032

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 30 2006

Uniform Issue List: 408.03-00
T:EP:RA:T4

Legend:

Taxpayer A =
Company B =
Company C =
Amount D =
Date E =
Date F =
Date G =

IRA X =

IRA Y =

Dear

This is in response to your ruling request dated , submitted by your authorized representative, in which you request a waiver of the 60-day rollover requirement 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:

Taxpayer A, age **, represents that on Date F she received a distribution from IRA X totaling Amount D. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to a mistake by

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Company C which led to Amount D being placed in a non-IRA account with Company C. Taxpayer A further represents that Amount D has not been used for any other purpose.

Taxpayer A made a written request on the proper Company C form for a direct rollover from IRA X to IRA Y on Date E. However, this requested transfer of Amount D was not completed until approximately three months later on Date F. This was a transfer of individual retirement funds between brokers and confusion during the administrative process resulted in the delay between Date E and Date F. In addition, since the transferring agent, Company B, understood that the funds would be transferred into another custodial account, a Form 1099-R was not issued to Taxpayer A. On Date G, Taxpayer A discovered that Amount D was being held in a non-IRA account with Company C rather than in IRA Y as Taxpayer A requested. An administrative error occurred in the transfer of Amount D. Amount D has remained in the non-IRA account with Company C from the date of transfer without any further activity except for earnings.

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

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)).

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

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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 of the Treasury may waive the 60-day requirement under sections 408(d)(3)(A) and (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.

Revenue Procedure 2003-16, 2003-4 I.R.B. 359, 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 by Taxpayer A is consistent with her assertion that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to a mistake by Company C that resulted in Amount D being placed in a non-IRA account. The documentation presented further demonstrates the intent of Taxpayer A to complete a rollover of Amount D from IRA X directly to IRA Y.

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 D.

You are 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 rollover 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 that may be applicable hereto.

This ruling is directed solely to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

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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 have any questions regarding this ruling, you may contact

Sincerely yours,
/s/ Ada Perry

for Donzell Littlejohn, Manager
Employee Plans Technical Group 4

Enclosures:

Notice of Intention to Disclose
Deleted copy of this letter