PLR 200802035: Late IRA rollover allowed after adviser sent funds to a non-IRA account

Plain-English summary

A taxpayer intended to move funds from an IRA annuity into another IRA, but her financial adviser marked the transfer paperwork for a non-IRA account. The proceeds, after tax withholding, landed in that account and remained unused. Because the taxpayer relied on the adviser's mistaken instructions, the IRS waived the usual 60-day IRA rollover deadline under § 408(d)(3)(I). It gave her 60 days from the ruling to contribute the full distributed amount to a rollover IRA. The ruling required all other rollover rules to be satisfied and expressed no view on other tax consequences.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline after her adviser's error?
• Outcome: Approved.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200802035

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

OCT 15 2007

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

Legend:

Taxpayer =
IRA A =
Financial Institution B =
Financial Institution C =
Individual D =
Account E =
Amount 1 =
Amount 2 =

Amount 3 =

Dear

This letter is in response to a request for a letter ruling dated May 29, 2007, as supplemented by additional correspondence dated July 30, 2007, from your authorized representative, in which you have applied for a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code ("Code"), regarding the distribution of Amount 1 from your individual retirement annuity (IRA A) maintained with Financial Institution B.

The following facts and representations have been submitted under penalty of perjury in support of the ruling requested:

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Taxpayer, age 53 at the time of the distribution of Amount 1 from IRA A, represents that her failure to accomplish a rollover within the 60-day period prescribed by Code

section 408(d)(3) was due to her reliance on the actions of Individual D, her financial advisor and a broker/dealer at Financial Institution C. Amount 3 (Amount 1 less withholding of federal taxes totaling Amount 2) was deposited by Taxpayer into Account E, a non-IRA account with Financial Institution C. Amount 3 remains in Account E and has not been used for any purpose. Taxpayer received a Form 1099-R for 2006 from

Financial Institution B showing a taxable distribution equal to Amount 1 and 10 percent federal tax withholdings.

Taxpayer maintained IRA A, an individual retirement annuity under section 408(b) of the Code. Taxpayer represents that on March 1, 2006, on the advice of Individual D, Taxpayer instructed Financial Institution B to liquidate IRA A and transfer the proceeds to Account E. Individual D completed the application form for the transfer of funds in IRA A. Individual D incorrectly designated on the application that the proceeds from the liquidation of IRA A were to be deposited in a “non-qualified” account and he incorrectly identified IRA A as a “nonqualified” account. Taxpayer signed the application on March 1, 2006. The cash surrender value of IRA A was equal in amount to Amount 1. On March 8, 2006, Amount 3 (Amount 1 net of federal tax withholdings) was deposited into Account E with Financial Institution C. Taxpayer intended for Amount 1 to be rolled over to an IRA with Financial Institution C. She desired to transfer funds in her IRA annuity (IRA A) to an IRA invested in shares of mutual funds because the latter promised a higher rate of return. Lacking experience in financial matters, Taxpayer relied on Individual D to accomplish the transfer. By letter dated July 27, 2007, Financial Institution C, the employer of Individual D, acknowledged that Individual D’s actions caused Amount 3 to be mistakenly deposited into Account E, a non-IRA account.

Based on the above facts and representations, you request that the Internal Revenue Service (“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

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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 the documentation submitted by Taxpayer is consistent with her assertion that her failure to accomplish a timely rollover of Amount 1 was due to her reliance on Individual D, an employee of Financial Institution C, whose actions mistakenly resulted in the deposit of Amount 3 into Account E, 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 A. Taxpayer is granted a period of 60 days from the issuance of this letter ruling to contribute

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Amount 1 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 1 will be considered a rollover contribution within the meaning of section 408(d)(3).

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 [redacted], SE:T:EP:RA:T1, at [redacted].

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

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