PLR 200720025: IRA owner gets more time to roll over funds after adviser error

Plain-English summary

An IRA owner withdrew funds while moving investment accounts on a financial adviser's advice. The adviser did not realize that one account was an IRA, and the funds went into a non-IRA annuity rather than another IRA. The IRS accepted that the missed 60-day rollover deadline resulted from the adviser's misunderstanding. It waived the deadline under IRC § 408(d)(3)(I) and gave the owner 60 days from the ruling date to contribute the funds to a rollover IRA. The waiver remains subject to all other rollover requirements and does not cover any required minimum distribution.

Ruling snapshot

• Question: May the owner roll the funds into an IRA after the 60-day deadline?
• Outcome: Approved; the owner has 60 days from the ruling date to complete the rollover.
• Key authorities: IRC §§ 408(d)(3), 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 21 2007
[illegible handwritten notation]
Uniform Issue List: 408.03-00

Legend:

Taxpayer A
Company B
Company C
Financial Adviser D
Bank E

Amount F

Date G

Date H

Date I

IRA X

Dear

This is in response to your request dated and additional information submitted on and . 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 G he received a distribution from IRA X totaling Amount F. Taxpayer A asserts that his failure to accomplish a rollover

within the 60-day period prescribed by section 408(d)(3) was due to a misunderstanding by Financial Adviser D which led to Amount F being placed into a non-IRA account with Company C. Taxpayer A further represents that Amount F has not been used for any other purpose.

Taxpayer A historically relied on the expertise and advice provided by his financial adviser for purposes of retirement and investment planning. His new financial adviser, Financial Adviser D, advised Taxpayer A to move his three existing investment accounts held by Company B to a new investment firm because of their poor investment performance. Taxpayer A agreed to this advice and entrusted the distribution and reinvestment process to Financial Adviser D. Financial Adviser D was not aware that one of these investment accounts was an IRA, and checked the box on the Company B distribution form indicating the plan type as non-qualified. Even though the incorrect plan type was checked, Company B accepted the distribution form. In order to utilize losses in the accounts held by Company B, Financial Adviser D also recommended to Taxpayer A that the withdrawals from his

three Company B accounts go directly to Taxpayer A rather than being transferred directly to Company C.

|

|

|

On Date G, a total distribution from IRA X of Amount F was received and deposited by Taxpayer A into Bank E in a personal non-IRA account. On Date I, as soon as a bank hold was released, Amount F was used for the purchase of an annuity with Company C that was a non-IRA. The transfer of IRA X to a non-IRA account was not the intent of either Taxpayer A or Financial Adviser D, but occurred because Financial Adviser D believed that Taxpayer A’s investments were in non-IRA accounts. Taxpayer A was not aware that a taxable distribution had been made from IRA X until he received a letter and Form 1099-R on Date I from Company B. Amount F remains in the non-IRA account with Company C.

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 F.

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

3 200720025

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)(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 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 his assertion that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to a misunderstanding by Financial Adviser D that resulted in Amount F being placed in a non-IRA account.

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

4 200720025
contribute Amount F 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 F will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

In accordance with section 408(d)(3)(E) of the Code, this ruling does not authorize the rollover of amounts that are required to be distributed by section 401(a)(9) 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.

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,

Donzell Littlejohn, Manager
Employee Plans Technical Group 4

Enclosures:

Notice of Intention to Disclose
Deleted copy of this letter