PLR 200828030: IRA rollover waiver granted after misappropriation, with distribution limit

Plain-English summary

An IRA owner withdrew funds to roll them into another IRA and wrote a check to a financial institution representative to arrange the rollover. She said the representative kept the funds for personal use. The representative later left a note admitting misappropriation of customer funds, and she settled with the financial institution. The IRS found the submitted documents consistent with her account and waived the 60 day rollover deadline under section 408(d)(3)(I). She has 60 days from the ruling letter to complete the rollover into an IRA in her name. The waiver does not permit a rollover of amounts that must be distributed under section 401(a)(9).

Ruling snapshot

• Question: Could the owner receive a waiver of the IRA rollover deadline after a representative misappropriated the funds?
• Outcome: Approved, except for any amount required to be distributed under section 401(a)(9).
• Key authorities: IRC §§ 401(a)(9), 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

200828030
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

APR 16 2008 Uniform Issue List: 408.03-00

Legend:

Taxpayer A =

IRA X =

Amount A =

Individual H =
Financial Institution P =
Entity V =

Date 1 =

Date 2 =

Date 3 =

Dear

This is in response to your request dated June 8, 2007, and supplemented by correspondence dated December 10, 2007, and February 5, 2008, in which you request 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 71, received a distribution on Date 1, 2005, from individual retirement account (“IRA”) X in the sum of Amount A, with the intent to roll over Amount A into another individual retirement account. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to the misappropriation of funds by Individual H.

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Taxpayer A had previously established IRA X with the assistance of Individual H, a securities licensed representative of Financial Institution P. On Date 1, 2005, Taxpayer A, acting on the advice of Individual H, closed IRA X and withdrew the total of Amount A intending to roll it over into an IRA. On Date 2, 2005, Taxpayer A wrote a check for Amount A to Individual H made payable to Entity V, Individual H’s business entity to establish the rollover IRA. Taxpayer A asserts that, contrary to his representations to Taxpayer A, Individual H retained the funds for his own personal use.

It is further represented that on Date 3, 2007, Individual H committed suicide, leaving a note confessing to the misappropriation of funds of a number of Financial Institution P customers including Taxpayer A. Taxpayer A and Financial Institution P have entered into a settlement agreement and Taxpayer A seeks a ruling waiving the 60-day period to roll over Amount A.

Based on the facts and representations, you request a ruling that the Service waive the 60-day rollover requirement contained in section 408(d)(3) of the Code

regarding Amount A.

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 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

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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 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 in support of the requested ruling is consistent with her assertion that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to the misappropriation of these funds by Individual H.

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 A from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to complete the rollover of Amount A into an IRA maintained in

her name.

This ruling does not authorize the rollover of amounts that are required to be distributed by section 401(a)(9) of the Code.

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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.

If you wish to inquire about this ruling, please contact Please address all correspondence to

SE:T:EP:RA:T3.

Sincerely yours,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

Enclosures:

Deleted copy of letter ruling
Notice of Intention to Disclose