PLR 200717024: Wrong rollover advice excuses one late IRA deposit

Plain-English summary

A taxpayer withdrew IRA funds while buying a home after a financial institution told him he had 90 days to redeposit them. The actual rollover deadline was 60 days. He tried to redeposit part of the money after that deadline but within the period he had been told, then placed it in an account outside an IRA. Another part was not available until after the 90-day period. The IRS waived the 60-day deadline for the first part, citing his reliance on the incorrect advice, and gave him 60 days from the ruling to contribute it to a rollover IRA. It declined to waive the deadline for the later available part.

Ruling snapshot

• Question: Could the taxpayer make late IRA rollover deposits after receiving incorrect advice about the deadline?
• Outcome: Mixed; waiver granted for one portion and denied for the other.
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

200717024

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 01 2007

Uniform Issue List: 408.03-00

T:EP:RA:T1

Legend:
Taxpayer A

IRA B

Financial Institution C
Financial Institution D

Account E

Financial Institution F
Amount 1 =
Amount 2 =
Amount 3 =
Amount 4 =
Amount 5 =

Dear:

This letter is in response to a request for a letter ruling dated January 30, 2006, as supplemented by additional correspondence dated September 28, October 30, and December 12, 2006, from your authorized representative, in which you request a waiver

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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 represents that he received a distribution from IRA B totaling Amount 1. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to his reliance on misinformation given him concerning the 60-day period by a representative of Financial Institution C.

In June, 2005, Taxpayer A discussed, with a representative of Financial Institution C, using his IRA funds in Financial Institution D as collateral on the purchase of a new residence. The representative of Financial Institution C telephoned Financial Institution D and was told that Taxpayer A would have 90-days to redeposit his IRA distribution. The representative of Financial Institution C communicated that fact to Taxpayer A and, relying on this advice, Taxpayer A withdrew Amount 1 (Amount 2 plus Amount 3) from IRA B on June 13, 2005, intending to redeposit the funds in IRA B by September 10, 2006. Taxpayer A has submitted documentation from Financial Institution C acknowledging the fact that Taxpayer A was told he had 90 days to redeposit the funds.

On August 26, 2005, Taxpayer A settled on his new home purchase and attempted to redeposit Amount 4 into an IRA but was told he had missed the 60-day rollover period. On September 5, 2005, within the 90-day period, Amount 4 was deposited into a non- IRA account, Account E, at Financial Institution F. Amount 5 was not deposited into Account E until October 21, 2005, after the sale of Taxpayer A’s prior residence.

Based on the above facts and representations, Taxpayer A requests that the Internal Revenue Service (the “Service”) waive the 60-day rollover requirement with respect to the distribution of Amount 1 contained in section 408(d)(3) of 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)(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

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(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).

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 documentation submitted by Taxpayer A is consistent with his assertion that his failure to accomplish a timely rollover was due to his reliance on misinformation given him concerning the 60-day period by Financial Institution C.

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 4 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to

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contribute Amount 4 into a Rollover IRA. Provided all other requirements of section 408(d)(3), except the 60-day requirement, are met with respect to such contribution, Amount 4 will be considered a rollover contribution within the meaning of section 408(d)(3). Since Amount 5 was not available for redeposit within the 90-day period, the Service hereby declines to waive the 60-day rollover requirement with respect to the distribution of Amount 5 from IRA B.

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, at. 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 ruling letter
Notice of Intention to Disclose, Notice 437

cc: