PLR 200909076: A custodian's error justified an IRA rollover waiver

Plain-English summary

A taxpayer directed funds from an IRA to a new rollover IRA, but the receiving financial institution failed to establish an account owned by an IRA custodian. After discovering the mistake more than 60 days later, the taxpayer moved the remaining funds, reduced by a decline in value, into an IRA at another institution. The IRS found the documentation consistent with the taxpayer's account of the institution's error. It waived the 60-day deadline for the amount actually contributed to the replacement IRA. The ruling did not permit the rollover of any required minimum distribution.

Ruling snapshot

• Question: Could an IRA contribution made after the 60-day deadline qualify as a rollover when the receiving institution failed to establish the intended IRA?
• Outcome: Approved: the IRS treated the later contribution as a rollover, subject to the other statutory requirements.
• Key authorities: IRC §§ 401(a)(9), 408(a)(6), and 408(d)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

200909076

WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

Uniform Issue List: 408.03-00

DEC - 2 2008

Legend:

SE:T:EP:RA:T3

Taxpayer A =
IRA X =
Amount C =
Amount D =
Financial Institution M =
Individual B =
Custodian F =
Account M =
IRA E =
Year 1 =
Date 1 =
Date 2 =

Date 3 =

Financial Institution E =
Dear :

This is in response to your letters dated April 3, 2008, and July 30, 2008, submitted on your behalf by your authorized representative, in which you request

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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 asserts that on Date 1 Taxpayer A authorized a direct transfer of Amount C from IRA X to Account M. Taxpayer A asserts that his failure to accomplish a rollover of Amount C within the 60 day period prescribed by section 408(d)(3) of the Code was due to Financial Institution M’s error in failing to establish a rollover IRA account as directed by Taxpayer A. Taxpayer A further represents that he has not used Amount C for any other purpose.

During Year 1,Taxpayer A discussed with Financial institution M representatives the rollover of IRA X, held by Custodian F, to an account to be set up by Financial Institution M. Individual B, a Financial Institution M representative assured Taxpayer A that Financial Institution M could “accommodate” IRA accounts. Relying on Individual B’s expertise on Date 1, Taxpayer A arranged for the wire transfer of Amount C from IRA X to Account M. On Date 2, which was more than 60 days past the Date 1 wire, Taxpayer A received a phone call from a representative of Financial Institution M in which an admission was made that Account M was not properly established and owned by an IRA custodian. Taxpayer A immediately contacted Financial Institution E. On Date 3, Taxpayer A, following the advice of Financial Institution E, withdrew Amount D (Amount C minus a decline in asset value) from Account M and deposited Amount D into IRA E, maintained by Financial Institution E, as custodian for Taxpayer A. Taxpayer A received a Year 1 Form 1099-R from Custodian F which reported Amount C as a distribution to Taxpayer A.

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).

200909076

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

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

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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 rollover of Amount D was due to Financial Institution M's error in failing to establish a rollover IRA account as directed by Taxpayer A.

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 to Taxpayer A of Amount D. Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, are met with respect to such IRA contribution, the Service will treat Taxpayer A's Date 3 contribution of Amount D to IRA E as 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.

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If you have any questions, please contact

Sincerely yours,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

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