PLR 200850051: a rollover waiver that names an exception it never states

Plain-English summary

Taxpayer A, age 54, left Employer B and tried to move three tax deferred annuity accounts held under Plan X into a traditional IRA at Company H. Financial Advisor J helped fill out the transfer form and wrote Bank C as the payee instead of Company H. Bank C spotted the problem on one of the three checks and returned it, and that one reached an IRA. The other two, Amount D and Amount E, were deposited by Bank C into Account M, an ordinary money market account. Taxpayer A wrote asking that the checks be reissued, assumed the correction had gone through, and received Forms 1099-R reporting that valid rollovers had occurred. The mistake surfaced only on Date 4. The Service waived the 60-day requirement under section 402(c)(3)(B), reaching the 403(b) accounts through section 403(b)(8)(B).

Two defects sit in the operative text. The sentence granting relief waives the requirement "with respect to the distribution of Amount and Amount E", dropping the D from one of the two amounts it rules on. The very next sentence promises that the contribution of Amount D and Amount E into an IRA "(except as noted below)" will be a rollover contribution, and nothing is noted below. The letter ends with the standard no-opinion and precedent paragraphs and states no exception of any kind.

Company A does the work in this story and is never explained. Company A received the correction letter, reissued the check, and sent the Forms 1099-R, but the plan is described only as maintained by Employer B, and the legend entry for Company A is redacted like every other. The erroneous information returns matter more than the letter lets on. They are the reason a payee error went undetected long enough to blow the 60 days, and the Service waives the deadline without a word about the forms that reported a rollover which had not happened. Taxpayer A is 54 and so under 59 and a half, yet no ruling on the additional tax of section 72(t) was requested or given, unlike 0850053 in this same release.

This document is signed. Donzell Littlejohn, Manager, Employee Plans Technical Group 4, is legible, which sets it apart from the September 2008 Employee Plans letters at 0850055 and 0850056 in this release, whose signature blocks survived the scan with no identifiable name. The scan is otherwise poor: the letterhead reads "DEFARTMENT CF THE TREASUR*" and "INTERNAL FEVENULE SEAV-CL", the ZIP code renders as "2eCeia", and the printed document number appears variously as "90085900528" and "9 OU g 5 0 0 5 i". Those are left as scanned. Three OCR corrections were applied and are recorded here: "inciuding IRAs" to "including IRAs", "whetiver the check was cashed" to "whether the check was cashed", and "Section 61 10(k)(3)" to "Section 6110(k)(3)". The revenue procedure cited, Rev. Proc. 2003-16, is reproduced as released and was not independently confirmed here, because citation lookup was unavailable in this session.

Ruling snapshot

Waiver granted. The Service waived the 60-day rollover requirement for the distributions of Amount D and Amount E, and gave Taxpayer A 60 days from issuance to contribute both into a rollover IRA.

Full text (IRS public release)

TAX EXEMPT ANC

ERNMENT ENTITIES

71M

DEFARTMENT CF THE TREASUR*
INTERNAL FEVENULE SEAV-CL

VAASHING™ON

Pana

2eCeia

SEP 1 9 ats

200850051

Uniform Issue List: 402.00-00, 403.05-00

XXXXKXKXKKKKKKXKXKK KK

XXXXKXXKXKKXKXKXKXKXKXK

XXKXKXKKXKKKKKKKK KKK

Legend:

Taxpayer A = XXXXXXKXXKXXKXKXKXKXKXKXKX KKK
Plan X = XXXXXXXXXKXXXXXKXKKXKXXX
Account K = XXXKXXKXXKXKXKXKXKKKXKXKXKXKKKX
Account L = XXXXXXKXKXXKXKXKXKXKKXKKKXKKK

Account M = KXXKKKXKXKXXKKXKKKKKKK KKK

Amount D = XXXXKXXKKXXKXXKXKXXKXXKXKXKX

Amount E = XXXXXKXXXKXXKXKKXXKKXKXKKXKX

Employer B = XXXKXXKXXKXKXKXKKKKXKKKKXKK

Bank C = XXXXXXXXXKKKXKXKKKXKKKKK

Company A = XXXXXXXKXKXKXKKXKKKKKKKKK
Company H = XXXXXXXXKXXKKXKKKKKXKKKK

Financial Advisor J = XXXXXXXXXXXXXXXXXXXXX

Date 1

Date 2

Date 3

= XXXXXXKXXKXKXKKKKKKKK KKK
= XXXXXXXXXXXKXKKKKKKKXXK

= XXXXXXXXKXKKKKK KKK KKK

XXXKXXXKXKKKXKXKXKKKXKX
90085900528

Date 4 = XXXXXXXXXXKXKXKXKXKXKKXX

Dear XXXXXxX:

This is in response to your request dated June 28, 2007, as supplemented by
correspondence dated July 23, July 24, August 1, September 14, September 24,
September 28, October 8, October 10, and October 31, 2007, submitted by your
authorized representative in which you request a waiver of the 60-day rollover
requirement contained in section 402(c)(3)(A) of the Internal Revenue Code (‘the
Code"), as applicable to an annuity described in Code section 403(b).

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

Taxpayer A, age 54, represents that distributions from Account K and Account L,
tax deferred annuity retirement accounts described in Code section 403(b), were
intended to be directly rolled over into an Individual Retirement Account (IRA)
described in Code section 408(a). Taxpayer A asserts that her failure to
accomplish rollovers within the 60-day period prescribed by section 402(c)(3)(A),
and applicable to her situation pursuant to Code section 403(b)(8)(B), was due to
mistakes made by Financial Advisor J and Bank C, which led to Amount D and
Amount E being placed in Account M, a non-IRA money market account.
Taxpayer A further represents that Amount D and Amount E are currently in
Account M with Bank C and have not been used for any purpose.

On Date 1, Taxpayer A attempted to establish a traditional IRA at Company H
with funds distributed from three separate accounts within Plan X, including
Account K and Account L. Plan X is a retirement plan maintained by Employer
B, the former employer of Taxpayer A. Taxpayer A completed a form requesting
a trustee-to-trustee rollover from these accounts to a traditional IRA with
Company H. Financial Advisor J, Taxpayer A's financial advisor, assisted
Taxpayer A in completing the form and named Bank C as Payee rather than
Company H, the intended payee. On Date 2, Bank C contacted Financial Advisor
J and returned one of the three checks he had sent to Bank C, alerting him to the
error. On Date 3, Taxpayer A wrote a letter to Company A explaining that the
disbursement checks for the three accounts had been issued to an incorrect
payee and requested that they be reissued to Company H. The check that was
returned was reissued to Company H and was deposited in an IRA. The other
two checks representing distributions from Account K and Account L, were not
returned but were deposited by Bank C into Account M. Taxpayer A represents
that she assumed that after sending the letter to Company A the proper
correction had been made and that Amount D and Amount E had been deposited
in an IRA. Further, Taxpayer A received Forms 1099-R from Company A,
indicating that valid rollovers had occurred. On Date 4, Taxpayer A discovered
that Amount D and Amount E had been deposited in a non-IRA account at Bank

XXXXKXXKKKXXXXKKKXK 9 OU g 5 0 0 5 i

C. Amount D and Amount E remain in Account M at Bank C and have not been
used.

Based upon the foregoing facts and representations, Taxpayer A requests that
the Service waive the 60-day rollover requirement with respect to the distribution
of Amount D and Amount E.

With respect to your ruling request, section 402(a) of the Code provides,
generally that, except as otherwise provided in section 402, any amount actually
distributed from a trust described in section 401(a) which is exempt from tax
under section 501(a) of the Code shall be taxable to the distributee, in the
taxable year of the distributee in which distributed, under section 72 of the Code
(relating to annuities).

Section 402(c) of the Code provides rules governing rollovers of amounts from
exempt trusts to eligible retirement plans including IRAs.

Section 402(c)(1) of the Code provides, in general, that if any portion of an
eligible rollover distribution from a qualified trust is transferred to an eligible
retirement plan, the portion of the distribution so transferred shall not be
includible in gross income in the taxable year in which paid.

Code section 402(c)(3)(A) provides that, except as provided in subparagraph (B),
paragraph (1) shall not apply to any transfer of a distribution made after the 60th
day following the day on which the distributee received the property distributed.

Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60-
day requirement under section 402(c)(3)(A) 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 402(c)(3)(B) of the Code.

Section 402(c)(8) of the Code defines an "eligible retirement plan" as (i) an
individual retirement account described in section 408(a) of the Code, (ii) an
individual retirement annuity described in section 408(b) of the Code (other than
an endowment contract), (iii) a qualified trust, (iv) an annuity plan described in
section 403(a) of the Code, (v) an eligible deferred compensation plan described
in section 457(b) of the Code which is maintained by an eligible employer
described in section 457(e)(1)(A) of the Code, and (vi) an annuity contract
described in section 403(b) of the Code.

Section 403(b)(1)(E) of the Code (“flush" language) provides, in relevant part,
that any amount distributed out of an annuity contract described in section
403(b)(1) shall be taxable to the distributee, in the taxable year of the distributee
in which distributed, in the manner provided under section 72 of the Code.

Section 403(b)(8)(A) of the Code provides that if any portion of the balance to the
credit of an employee in a 403(b) annuity contract is paid to him in an eligible
rollover distribution (within the meaning of section 402(c)(4)), and the employee

XXXXKXKKXKXKXKXKXKKXKKXK 9 QU Q 5 0 0 5 i

transfers any portion of the distribution to an eligible retirement plan described in
section 402(c)(8)(B), then the distribution to the extent transferred shall not be
includible in gross income for the taxable year in which it was distributed.

Section 403(b)(8)(B) of the Code provides that rules similar to the rules of
paragraphs (2) through (7) and (9) of section 402(c) shall apply for purposes of
section 403(b)(8)(A).

Revenue Procedure 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 402(c)(3)(B), 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 on behalf of Taxpayer A
is consistent with her assertion that the failure to accomplish a timely rollover was
caused by an error on the part of Financial Advisor J in that he failed to properly
complete the rollover application forms which led to Amount D and Amount E
being placed into a non-IRA account by Bank C. The information presented by
Taxpayer A is consistent with her assertion that she attempted to rollover Amount
D and Amount E.

Therefore, pursuant to Code section 402(c)(3)(B), and 403(b)(8) of the Code, the
Service hereby waives the 60-day rollover requirement with respect to the
distribution of Amount and Amount E. As a result, Taxpayer A is granted a period
of 60 days from the issuance of this ruling letter to contribute Amount D and
Amount E into a Rollover IRA. Provided all other requirements of section
403(b)(8) of the Code (which incorporates the requirements of Code section
402(c)), except the 60-day requirement, are met with respect to such
contribution, the contribution of Amount D and Amount E into an IRA (except as
noted below) will be considered a rollover contribution within the meaning of
section 403(b)(8) of the Code.

No opinion is expressed as to the tax treatment of the transactions described
herein under the provisions of any other section of either the Code or regulations,
which may be applicable thereto.

This ruling 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 by others as precedent.

A copy of this letter is being sent to your authorized representative pursuant to a
Power of Attorney on file in this office.

*y

XXXXXXXXXXXXXXKXKX | 200850051

If you have any questions regarding this letter, please contact XXXXXXXXX, ID
Number XXXXXX, SE:T:EP:RA:T4 at XXXXXXXXXX.

Sincerely,

-*. _ Donzell Littlejohn, Manager
Employee Plans Technical Group 4

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose