PLR 200927043: Bank’s non-IRA deposit error qualifies for rollover deadline relief

Plain-English summary

A taxpayer asked a bank to place an IRA distribution into a rollover IRA, but the bank instead opened a non-IRA certificate of deposit. The taxpayer learned of the error about 12 months later when a tax preparer reviewed the distribution. Bank correspondence supported the request for relief, and the taxpayer represented that the funds had not been used for another purpose. The IRS waived the deadline under section 408(d)(3)(I) and granted 60 days from the ruling to complete the rollover, subject to the other rollover requirements. The letter expressly excluded required minimum distributions from the relief.

Ruling snapshot

• Question: Does a bank’s failure to follow rollover instructions justify waiving the 60-day deadline?
• Outcome: Approved: 60 days to complete the eligible IRA rollover
• Key authorities: IRC § 408(d)(3)(I), (E); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 200927043

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

APR -9 2009

SE:T:EP:RA:T3

Legend:
Taxpayer A:
Amount M:

IRA X:

Bank C:

Bank C representative L:

Bank M:

Date 1:

Date 2:

Date 3:

Dear :

This is in response to your letters dated September 30, 2008, February 11, 2009, and March 5, 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 1 Taxpayer A received a distribution of Amount M from IRA X and that his failure to accomplish a rollover of Amount M within the

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60 day period prescribed by section 408(d)(3) of the Code was due to Bank C error in failing to follow Taxpayer A's instructions.

On Date 1 Taxpayer A intended to rollover the traditional individual retirement account, IRA X, he maintained at Bank M into a new IRA at Bank C where Taxpayer A had a long-term banking relationship. On Date 1 Taxpayer A obtained a check from Bank M which was for Amount M and which included the notation on the face of the check “IRA Total Distribution". On Date 1 Taxpayer A personally presented the Bank M check to Bank C representative L and discussed with her his intentions to open a rollover IRA with the Bank M check. Bank representative L prepared paperwork for a certificate of deposit and stated in response to Taxpayer A's express instruction that there should be no taxes, that there would be not taxes due except for interest income. Taxpayer A emphasized that he did not want to be penalized and or taxed for closing out IRA X and rolling over Amount M into an account with Bank C. Taxpayer A believed he was purchasing a certificate of deposit as part of a rollover of the Bank M check in Amount M. Taxpayer A first became aware that Bank C placed his intended rollover into a non-IRA certificate of deposit 12 months later when Taxpayer A’s tax preparer informed him that he had received a distribution of Amount M from IRA X on Date 1.

Taxpayer A has submitted a letter dated Date 2, in which Bank C’s representative stated that Taxpayer A had been a customer for 23 years and that Bank C routinely presented Taxpayer A with investment advice. In addition, Taxpayer A has submitted a letter dated Date 3, in which the President of Bank C agreed to pay for fees associated with the filing of a 60-day waiver request with the Internal Revenue Service.

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.

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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 on Date 1 Taxpayer A received a distribution of Amount M from IRA X and that his 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 Bank C 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.

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If you have any questions, please contact

Sincerely yours,

Frances V. Sloan
Frances V. Sloan, Manager
Employee Plans Technical Group 3

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