PLR 200822028: Credit union error earns waiver of IRA rollover deadline

Plain-English summary

A taxpayer asked to move money from one IRA certificate of deposit into another, while taking a required minimum distribution separately. A credit union employee instead put all the money into a non-IRA account, and the taxpayer discovered the mistake after the usual 60-day rollover period. The IRS found the submitted records consistent with a financial institution error and waived the deadline under § 408(d)(3)(I) for the amount intended for the new IRA. The taxpayer had 60 days from the ruling letter to contribute that amount to a rollover IRA, provided the other rollover rules were met. The waiver did not cover the required minimum distribution.

Ruling snapshot

• Question: Could the taxpayer roll over an IRA distribution after a credit union error caused the 60-day deadline to pass?
• Outcome: The IRS waived the deadline for the eligible amount and allowed 60 days from the letter to complete the rollover.
• Key authorities: IRC §§ 408(d)(3)(A), 408(d)(3)(E), and 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200822028

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION FEB 22 2008

Uniform Issue List: 408.03-00

Legend:

Taxpayer A
Credit Union B
Amount C
Amount D
Amount E
Employee F
Date G

Date H

Date I

IRA X

Dear :

This is in response to your request dated May 22, 2006, for a waiver of the 60-day rollover requirement contained 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 73, represents that he received a distribution from IRA X totaling Amount C. Of Amount C, Amount E was a required minimum distribution.

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Taxpayer A asserts that his failure to accomplish a rollover of Amount D (Amount C less Amount E) within the 60-day period prescribed by section 408 (d)(3) of the Code was due to an error by Employee F of Credit Union B which led to Amount D being placed in a non-IRA account with Credit Union B. Taxpayer A represents that Amount D has not been used for any other purpose and remains in Credit Union B.

Taxpayer A maintained two accounts, IRA X and a non-IRA certificate of deposit, with Credit Union B. On Date G, Taxpayer A visited Credit Union B and spoke with Employee F who advised Taxpayer A to reinvest IRA X in another CD in order to obtain the best rate of return offered by Credit Union B. In addition, Taxpayer A's non-IRA CD at Credit Union B also matured at the same time as the CD in IRA X. Employee F stated that Taxpayer A could combine his required minimum distribution, Amount E, with the renewal of Taxpayer A's non-IRA CD into a single non-IRA CD. Taxpayer A signed the paperwork supplied by Employee F that he believed authorized the establishment of a non-IRA CD account and an IRA CD account and left Credit Union B with the understanding that the transactions would be carried out by Credit Union B as described to him by Employee F. However, Employee F combined all of Taxpayer A's funds into one non-IRA certificate of

deposit.

On Date H Taxpayer A had his federal income taxes prepared, and discovered Employee F’s error in causing a distribution from IRA X of Amount D and the failure to transfer Amount D to another IRA CD as Taxpayer A intended. On Date I, Taxpayer A met with Employee F and she admitted making a mistake in the above-

described transactions.

Based on the above facts and representations, you request that the Service waive the 60-day rollover requirement with respect to the distribution of Amount D.

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 or 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

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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 and documentation submitted 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 an error by Credit Union B which led to Amount D being placed in a non-IRA account instead of being transferred to a rollover IRA with Credit Union B.

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 D. Taxpayer A is granted a period of 60-days from the issuance of this ruling letter to contribute Amount D 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

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to such contribution, Amount D will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

Please note that, pursuant to section 408(d)(3)(E) of the Code, this ruling does not authorize the rollover of Code section 401(a)(9) minimum required distributions

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.

If you have any questions regarding this ruling, you may contact at

Sincerely yours,

[illegible]

Donzell Littlejohn, Manager
Employee Plans Technical Group 4

Enclosures:

Notice of Intention to Disclose
Deleted copy of this letter