PLR 200919068: Bank’s mistaken dishonor of a funded check justified rollover relief

Plain-English summary

An individual withdrew an amount from an IRA, returned part of it, and deposited a check for the remaining portion into the IRA within the 60-day period. The financial institution dishonored that check for insufficient funds even though the family trust account on which it was drawn held more than enough assets. The taxpayer learned of the problem about 14 days after the deadline, immediately replaced the check, and did not use the amount for another purpose. A letter from the bank acknowledged its error. The IRS waived the deadline for the remaining portion and granted 60 days from the ruling date to contribute an equal amount to one or more IRAs. The relief did not authorize rollover of any required minimum distribution.

Ruling snapshot

• Question: Could the taxpayer receive rollover relief for the portion covered by a bank check mistakenly dishonored despite sufficient assets?
• Outcome: Approved: the IRS granted 60 days from the ruling date to contribute an amount equal to the dishonored portion.
• Key authorities: IRC §§ 72, 401(a)(9), 408(d)(1), 408(d)(3), 6110(k)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

200919068

Uniform Issue List: 408.03-00

FEB 10 2009

SE:T:EP:RA:T3

Legend:

Taxpayer A:

Amount M:

Amount P:

Amount W:

IRA X:

Financial Institution E:

Date 1:

Date 2:

Date 3:

Date 4:

Date 5:

Financial Institution S:

Account T:

Dear:

This is in response to your letters dated June 7, 2007, August 26, 2008, and January 9, 2009, submitted on your behalf by your authorized representative, 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”).

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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 received a distribution of Amount M from IRA X. Taxpayer A asserts that his failure to accomplish a rollover of a portion of Amount M, Amount W, within the 60 day period prescribed by section 408(d)(3) of the Code was due to Financial Institution E error in failing to honor Taxpayer A’s check in Amount W.

On Date 1, Taxpayer A withdrew Amount M from IRA X. On Date 2 Taxpayer A returned a portion of Amount M to IRA X by depositing Amount P into IRA X. On Date 3 Taxpayer A issued a check for Amount W drawn on a Financial Institution S family trust account, Account T, and deposited the check for Amount W into IRA X intending to complete the rollover of Amount M into IRA X within the 60- day rollover period. However on Date 4 Financial Institution E notified Taxpayer A that the check for Amount W deposited in IRA X was not honored by Financial Institution S due to insufficient funds in Account T.

The Date 4 notification was approximately 14 days after the expiration of the 60-day rollover period. Taxpayer A took immediate action to replace the dishonored check and deposited additional funds into IRA X to complete the intended rollover of Amount M. Taxpayer A subsequently ascertained that on the date the check for Amount W was returned for insufficient funds, Account T assets more than exceeded Amount W. Taxpayer A has provided documentation of the error by submitting a Financial Institution S letter, dated Date 5, which acknowledges that at the time the check for Amount W was dishonored there were sufficient Account T assets to cover the check for Amount W. Taxpayer A further represents that he has not used Amount W for any other purpose.

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 M 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.

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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

(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

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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 rollover of Amount W within the 60 day period prescribed by section 408(d)(3) of the Code was due to Financial Institution E error in failing to honor Taxpayer A’s check in Amount W.

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 W 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 Amount W 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.

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.

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

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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