PLR 200907042: Bank error justified an IRA rollover deadline waiver

Plain-English summary

A taxpayer received distributions from two IRAs and took the combined check to a bank intending to make an IRA rollover into a higher-return investment. A bank representative instead placed the money into three non-IRA certificates of deposit. The taxpayer discovered the error when having his taxes prepared, and the funds had not been used for another purpose. The IRS found that the financial institution's error caused the missed 60-day deadline. It waived the deadline and gave the taxpayer 60 days from the ruling date to contribute the combined amount to a rollover IRA, subject to all other rollover requirements.

Ruling snapshot

• Question: Would the IRS waive the 60-day IRA rollover deadline when a bank mistakenly placed the funds in non-IRA certificates of deposit?
• Outcome: Approved: the taxpayer received 60 days from the ruling date to complete the rollover.
• Key authorities: IRC §§ 401(a)(9) and 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

200907042

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

TAX EXEMPT AND NOV 18 2008
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00 SE:T:EP:RA:T:4

Legend:
Taxpayer A =

Insurance Company M =

Bank N =

IRA X =

IRA Y =

Amount S =

Amount T =

Amount U =

Date 1 =

Date 2 =

Year K =

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Dear

This is in response to your letter dated , as supplemented by letters dated
, , and , in which you request a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code (“Code”).

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

Taxpayer A, age , represents that he received total distributions from IRA X in Amount S and from IRA Y in Amount T. Taxpayer A asserts 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 made by Bank N, which led to Amount U (Amounts S and T) being placed into three non-IRA certificates of deposit (CD). Taxpayer A further represents that Amount U has not been used for any other purpose.

In Year K, Taxpayer A maintained IRA X and IRA Y with Insurance Company M. On Date 1, Taxpayer A closed IRA X. Also, on Date 1, Taxpayer A closed IRA Y. On Date 1, Amounts S and T were distributed to Taxpayer A in a check for Amount U. On Date 2, Taxpayer A took the check for Amount U to Bank N and discussed his intent to rollover Amount U into a higher investment IRA. However, on Date 2, Amount U was erroneously placed into three individual non-IRA certificates of deposit by a representative of Bank N. When Taxpayer A had his taxes prepared, Taxpayer A discovered that Amount U had not been rolled into a rollover IRA at Bank N.

Based on the facts and representations, you request that the Internal Revenue Service waive the 60-day rollover requirement contained in section 408(d)(3) of the Code with respect to the distribution of Amounts S and T.

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 account 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 he 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 one-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.

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 408(d)(3)(I) of the Code, 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 his assertion that his failure to accomplish a timely rollover was caused by an error made by Bank N, which led to Amounts S and T from IRAs X and Y being placed into non-IRA accounts.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby waives the 60-day rollover requirement with respect to Amounts S and T. Taxpayer A is granted a

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period of 60 days from the issuance of this ruling letter to contribute Amount U into a rollover IRA. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day requirement, are met with respect to such contribution, Amount U will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

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

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 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 by others as precedent.

If you wish to inquire about this ruling, please contact , SE:T:EP:RA:T , I.D. No. , at ( ) .

Sincerely yours,

[signature]
Donzell Littlejohn, Manager
Employee Plans, Technical Group 4

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose