PLR 200852031: 60-day rollover waiver where a broker double-counted a required minimum distribution

Plain-English summary

In December, a financial representative at the taxpayer's brokerage called to tell him that his required minimum distribution for the year had not yet come out of his IRA, and that he needed to take a specific amount to satisfy the rule. The taxpayer was 83, knew the required minimum distribution rule applied to him, and relied on the representative to work out the number. The distribution went out.

It should never have gone out. The taxpayer had already taken distributions on two earlier dates that were more than enough to cover the year's requirement. The representative simply did not notice those earlier distributions, and so caused an unnecessary distribution on top of a requirement that had already been met. The taxpayer did not find out until his accountant caught it while preparing his federal income tax return for the year, by which point the 60-day rollover window had closed. The brokerage wrote to the taxpayer admitting its representative's error both in calculating the required minimum distribution and in issuing the extra distribution.

Under section 408(d)(3)(I), the Service may waive the 60-day requirement where enforcing it would be against equity or good conscience, and Rev. Proc. 2003-16 lists errors committed by a financial institution as the first of the relevant factors. The Service found the documentation consistent with the taxpayer's account and waived the deadline for the extra distribution. He has 60 days from the issuance of the letter to roll that amount into an IRA described in section 408(a).

The letter adds a limit worth noting. Section 408(d)(3)(E) takes required minimum distributions outside the rollover rules entirely, so the waiver reaches only the unnecessary distribution. It does not authorize rolling over the minimum distributions required by section 401(a)(9), which the taxpayer had properly received on the two earlier dates and which have to stay out of the account.

The scan is imperfect. The running page numbers, several instances of the letter I misread as the digit 1 in the citations to section 408(d)(3)(I), a stray character in the citation to section 6110(k)(3), and the signature name were corrected. Kept as released: the paragraph reciting section 408(d)(3)(E) appears twice in the letter, and the years are redacted, which is why sentences such as "his year federal income tax return" read with a gap.

Ruling snapshot

• Question: Can the 60-day rollover deadline be waived for an extra distribution a broker caused by overlooking that the year's required minimum distribution had already been satisfied?
• Outcome: approved. The 60-day requirement is waived for the unnecessary distribution, but the waiver does not extend to the required minimum distributions themselves, which section 408(d)(3)(E) bars from rollover.
• Key authorities: Code sections 72, 401(a)(9), 408(a)(6), 408(d)(1), 408(d)(3)(A), 408(d)(3)(B), 408(d)(3)(D), 408(d)(3)(E), 408(d)(3)(I); Rev. Proc. 2003-16, 2003-4 I.R.B. 359.

Full text (IRS public release)

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

TAX EXEMPT AND

GOVERNMENT ENTITIES OCT -2 2008

DIVISION

Uniform Issue List: 408.03-00

Legend:
Taxpayer A =

IRA X =

Date 1 =

Date 2 =

Date 3 =

Financial Representative Z =
Broker L =

Amount C =

Dear

This is in response to letters dated April 29, 2008, and July 3, 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 83, asserts that on Date 3 he received a distribution from IRA X of Amount C, and that Taxpayer A’s failure to accomplish a rollover of Amount C was due to the error of a representative of Broker L in providing incorrect advice and erroneously causing the distribution of Amount C. Taxpayer A asserts that Amount C has not been used for any other purpose.

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In December , Taxpayer A was called by Financial Representative Z of Broker L to inform Taxpayer A that his required minimum distribution (“rmd”) for

had not yet been distributed. Financial Representative Z advised Taxpayer A that he needed to receive a distribution of Amount C from IRA X to meet the rmd requirements. Taxpayer A asserts he was aware of the rmd rule and relied upon Financial Representative Z to calculate the rmd amount. Amount C was distributed on Date 3. However, on Dates 1 and 2, Taxpayer A had already received distributions which were sufficient to satisfy Taxpayer A’s year rmd from IRA X. Financial Representative Z did not notice the previous Date 1 and Date 2 distributions and erroneously caused Taxpayer A to receive Amount C. Taxpayer A did not discover this error until his accountant informed him of the error during the preparation of his year federal income tax return.

Broker L has issued a letter to Taxpayer A admitting the error of its representative in calculating Taxpayer A’s rmd and in issuing the Date 3 distribution.

Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60-day rollover requirement, with respect to the distribution of Amount C, contained in section 408(d)(3) of the Code (“the Code”).

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)(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)(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

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(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 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 is consistent with Taxpayer A’s assertion that on Date 3 he received a distribution from IRA X of Amount C, and that Taxpayer A’s failure to accomplish a rollover of

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Amount C was due to the error of a representative of Broker L in providing incorrect advice and erroneously causing the distribution of Amount C.

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 the Date 3 Amount C from IRA X. Pursuant to this ruling letter, Taxpayer A is granted a period of 60 days measured from the date of the issuance of this letter ruling to make a rollover contribution of an amount equal to the Date 3 Amount C to an IRA (or IRAs) described in Code section 408(a). Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, are met with respect to such IRA contribution, the contribution will be considered a rollover contribution within the meaning of Code section 408(d)(3).

Please note that, pursuant to code section 408(d)(3)(E), this ruling letter does not authorize the rollover of the 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, which may be applicable thereto.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being sent to your authorized representative.

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