PLR 200650021: Bank clearing miscommunication supports late IRA rollover relief

Plain-English summary

A taxpayer opened a rollover IRA and deposited a check within 60 days of an IRA distribution, but the check did not clear in time. Miscommunication between her son and the source bank's vice president delayed availability of the covering funds, and the receiving bank required an IRS letter before accepting the rollover. The funds had not been used for another purpose. The IRS waived the deadline under section 408(d)(3)(I) and allowed 60 days from issuance to contribute an equivalent amount to another IRA or IRAs, subject to the other rollover rules. Required distributions remain ineligible for rollover. One request paragraph calls the distribution Amount B, while the facts and operative conclusion use Amount A; that source inconsistency is preserved.

Ruling snapshot

• Question: Can bank clearing miscommunication justify relief when a rollover check was deposited within 60 days but did not clear?
• Outcome: Approved: 60 days from issuance to make the IRA rollover contribution, subject to all other requirements.
• Key authorities: IRC § 408(d)(3)(I) and (E); Rev. Proc. 2003-16.

Full text (IRS public release)

200650021
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

SEP 18 2006

T:EP:RA:T3

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =
IRA X =
Amount A =
Bank D =
Bank P =

Dear :

This is in response to your letters dated , , and
, 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

Taxpayer A, under age , received a distribution on , from

IRA X totaling Amount A and established a rollover IRA within 60 days. Taxpayer A asserts that due to a miscommunication, the rollover IRA check did not clear until after the 60-day IRA rollover period expired causing Taxpayer A’s failure to timely accomplish a rollover. Taxpayer A represents that the funds have not been

used for any other purpose.

On , Taxpayer A received Amount A from IRA X. On
, prior to the expiration of the 60 day rollover period Taxpayer A established a rollover IRA at Bank P and deposited a check in Amount A drawn on Bank D to complete the rollover of Amount A from IRA X. Taxpayer A was aware of the 60 day rollover period and explained her concern about making the 60-day deadline to a representative at Bank P at the time of establishing the intended rollover IRA. However, because of a miscommunication between Taxpayer A’s son and

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the Vice President of Bank D, the check did not clear. Bank P subsequently informed Taxpayer A that it would not accept Amount A as a rollover amount without a letter from the Internal Revenue Service.

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 B contained in section 408(d)(3) of the Code (“the Code”).

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)(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)(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 IRA which was not includible in gross income because of the application of section 408(d)(3).

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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 a failure to accomplish a rollover within the 60- day period prescribed by section 408(d)(3) was due to a miscommunication concerning the availability of funds to cover the rollover IRA check which, due to bank clearing routines, were not made available until after the 60-day IRA rollover period expired thus causing Taxpayer A’s failure to timely accomplish a rollover

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 to Taxpayer A of Amount A from IRA X. Pursuant to this ruling letter, Taxpayer A are granted a period of 60 days measured from the date of the issuance of this letter ruling to make a rollover contribution of an amount equal to Amount A to another IRA (or IRAs) described in Code section 408(a). Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, are met with respect to such IRA contribution, the contribution will be considered a rollover contribution within the meaning of Code section 408(d)(3).

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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. #
,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