PLR 200720022: Bank's account error qualifies IRA owner for late rollover relief

Plain-English summary

An IRA owner asked a bank to roll a distribution into a new IRA and invest it in a certificate of deposit. The bank instead placed the funds in a certificate of deposit outside an IRA. She learned of the error after receiving a Form 1099-R from the distributing bank. The IRS accepted that the missed 60-day rollover deadline resulted from a misunderstanding with the receiving bank. It waived the deadline under IRC § 408(d)(3)(I) and gave her 60 days from the ruling date to contribute the funds to a rollover IRA. All other rollover requirements still apply.

Ruling snapshot

• Question: May the owner complete an IRA rollover after the bank put the funds in a non-IRA account?
• Outcome: Approved; she has 60 days from the ruling date to contribute the funds.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200720022

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 22 2007
[illegible handwritten notation]

Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

IRA B =

Bank C =

Bank D =

Account E =

Amount 1 =

Dear

This letter is in response to a request for a letter ruling dated October 20, 2005, from your authorized representative, as supplemented by additional correspondence dated August 28 and November 29, 2006, and January 23, 2007, | 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:

200720022

Taxpayer A represents that she received a distribution from IRA B totaling Amount 1. 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 miscommunication or misunderstanding with Bank D.

Taxpayer A maintained IRA B with Bank C. On July 19, 2004, Taxpayer A =

received a check for Amount 1 from Bank C. On July 26, 2004, Taxpayer A = represents that she went to Bank D and told Bank D personnel that she wanted Amount 1 to be rolled over and deposited into an IRA at Bank D. Taxpayer A = further instructed Bank D representatives to invest her Amount 1 IRA assets in a Bank D certificate of deposit (CD). However, Bank D deposited Amount 1 into Account E, a non-IRA CD. Taxpayer A discovered the mistake when she received her Form 1099-R for 2004 from Bank C =

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 includibie 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

rr a a

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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 her assertion that her failure to accomplish a timely rollover was caused by a miscommunication or misunderstanding with Bank D, leading to Amount 1 being placed into a non-IRA account.

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.

This letter is directed only to the taxpayer who requested it. Section 611Q(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 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 yours,

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