PLR 200703042: Rollover relief granted after custodian deposited plan proceeds into a revocable trust account

Plain-English summary

A 65-year-old retirement-plan participant delivered a rollover check payable to his IRA to the financial institution holding that IRA. Its trust account administrator instead deposited the money into an investment account owned by his revocable trust. A later administrative review uncovered the mistake, and the institution acknowledged the error. The IRS waived the 60-day rollover requirement under section 402(c)(3)(B) because the institution's error caused the failure. The participant received 60 days from issuance of the ruling to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Does a custodian's mistaken deposit of plan proceeds into a nonretirement trust account justify a waiver?
• Outcome: Approved, with 60 days from issuance to complete the rollover.
• Key authorities: IRC §§ 402(c)(3)(B) and 401(a)(31); Rev. Proc. 2003-16.

Full text (IRS public release)

200703042
DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

OCT 26 2006

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 402.00-00

Legend:
Taxpayer A =

Plan B =

Financial Institution C =

IRA D =

Account E =

Amount 1 =

Dear :

This letter is in response to a request for a letter ruling dated from your authorized representative, in which you request 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 65, represents that he received a distribution from Plan B totaling

Amount 1. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 402 (c)(3) of the Code 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 on or about December 6, 2004, he received a check for Amount 1 from Plan B, a qualified retirement plan in which he participated. The check was made out directly to IRA D f/b/o Taxpayer A. Taxpayer A intended to deposit this “direct rollover”

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check into IRA D, an individual retirement arrangement that he maintained with Financial Institution C. Taxpayer A delivered this direct rollover check to Financial Institution C to be deposited in IRA D. However, on December 13, 2004, Taxpayer A’s Trust Account Administrator in Financial Institution C deposited Amount 1 in Account E, an investment account held in the name of Taxpayer A’s revocable trust. Account E is not a qualified retirement plan. On December 20, 2005, Financial Institution C’s trust officer discovered the depositing error during an administrative review of IRA D, and notified Taxpayer A that an error had occurred. Financial Institution C has provided documentation acknowledging the error.

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 1 contained in section 402(c)(3)of the Code in this instance.

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 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.

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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 402(c)(3)(B), 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 402(c)(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 402(c)(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.

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

Sincerely,

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
▶ Copy of Cover Letter to Authorized Representative

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