Determination 200925043: Waiver granted after adviser mistakenly closed inherited IRA

Plain-English summary

A widow inherited her husband's IRA and told her financial adviser that she wanted to treat it as her own, keep it open, and take small distributions as needed. She signed a form prepared by the adviser without realizing that it authorized a complete taxable distribution to a brokerage account. The adviser later confirmed the error in an affidavit, and the taxpayer represented that she had not used the funds. The IRS found the evidence consistent with a financial-institution error and waived the 60-day rollover deadline. It gave her 60 days from the ruling date to contribute the distributed amount to one or more IRAs, excluding any required minimum distribution.

Ruling snapshot

• Question: Should the IRS waive the rollover deadline after an adviser mistakenly processed a complete taxable distribution from an inherited IRA?
• Outcome: Approved
• Key authorities: IRC § 408(d)(3)(I); 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

Uniform Issue List: 408.03-00

MAR 20 2009

SE:T:EP:RA:T3

Legend:
Taxpayer A:
Date 1:
Date 2:
Date 3:
Amount M:

IRA X:

Financial Institution W:
Financial Advisor P:
Dear:

This is in response to your letters dated November 11, 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”).

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

Taxpayer A asserts that on Date 2 Taxpayer A received a distribution of Amount M from IRA X and that her failure to accomplish a rollover of Amount M within the 60 day period prescribed by section 408(d)(3) of the Code was due to Financial Institution W error in failing to follow Taxpayer A’s instructions.

200925043

Taxpayer A was the designated beneficiary of her deceased husband's IRA, IRA X. Taxpayer A discussed her intention to treat IRA X as her own IRA with her financial advisor, Financial Advisor P, of Financial Institution W and specifically discussed her intent to keep IRA X open and take small distributions from IRA X as needed. As a result of this discussion, Taxpayer A received a completed Financial Institution W form sent by Financial Advisor P to Taxpayer A for Taxpayer A’s signature. On Date 1, Taxpayer A, relying on the advice of her financial advisor, signed the prepared document and mailed it to Financial Advisor P. However, Taxpayer A did not realize that the prepared document from Financial Advisor P was an authorization for a complete distribution of IRA X to a taxable Financial Institution W brokerage account which was executed on Date 2. Taxpayer A did not realize the error until she received a Financial Institution W Form 1099R showing a distribution of IRA X in Amount M.

Taxpayer A has provided documentation of the error by submitting an affidavit of Financial Advisor P dated Date 3, in which, Financial Advisor P states that Taxpayer A never intended to distribute of the balance of IRA X.

Taxpayer A further represents that she has not used Amount M 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.

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 her assertion that on Date 2 Taxpayer A received a distribution of Amount M from IRA X and that her failure to accomplish a rollover of Amount M

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

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 M 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 M 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.

If you have any questions

Sincerely yours,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

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