PLR 200949053: IRS waives the 60-day rollover deadline after a bank deposits funds into the wrong account

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer who received a distribution from a former employer's 401(k) plan. The taxpayer instructed a bank to deposit the funds into an IRA, but the bank mistakenly deposited them into a non-IRA savings account. The taxpayer represented that the funds had not been used, and the bank acknowledged the miscommunication. Because the failure was caused by the bank's error, the IRS ruled that the distribution could be treated as a rollover contribution if all other requirements were met.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day rollover requirement after a bank deposited the distribution into a non-IRA account?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(31), 402(c)(3), and 6110(k)(3); Treas. Reg. § 1.401(a)(31), Q&A-15; Rev. Proc. 2003-16

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

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

SEP 09 2009

200949053

Uniform Issue List: 402.08-00

SE:T:EP:RA:T1

Legend:

Taxpayer A

Plan B

Bank C

Account D

Amount 1

Dear

This letter is in response to a request for a letter ruling dated September 17, 2008, in which you request a waiver of the 60-day rollover requirement contained in section 402(c)(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 his failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) of the Code was due to the failure of Bank C to place Amount 1 into an IRA per Taxpayer A’s instructions. Taxpayer A further represents that Amount 1 has been not used for any purpose.

Taxpayer A, age 56, received a distribution of Amount 1 from his former employer’s 401(k) plan (Plan B) on August 15, 200 . On August 27, 200 , Taxpayer A went to Bank C and met with a Bank C representative and requested her help in depositing Amount 1 into a similar type account. Amount 1 was inadvertently deposited into Account D, a non-IRA savings account. Bank C has acknowledged the miscommunication in a letter dated August 21, 200 .

2

200949053

Based on the above facts and representations, Taxpayer A has requested a ruling that the Internal Revenue Service (”Service”) waive the 60-day rollover requirement contained in section 402(c)(3) of the Code with respect to the distribution of Amount 1 from Plan B.

Section 402(c) of the Code provides that if any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, and the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent transferred) shall not be includible in gross income for the taxable year in which paid. Section 402(c)(3)(A) states that such rollover must be accomplished within 60 days following the day on which the distributee received the property. An individual retirement account (IRA) constitutes one form of eligible retirement plan.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary may waive the 60-day requirement under sections 402(c) 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 402(c)(3)(B) of the Code.

Section 401(a)(31) provides the rules for governing “direct transfers of eligible rollover distributions”.

Section 1.401(a)(31) of the Income Tax Regulations, Question and Answer-15, provides, in relevant part, that an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover is a distribution and rollover, and not a transfer of assets and liabilities.

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 402(c)(3) 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 acknowledged miscommunication with Bank C.

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200949053

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount 1 from Plan B. Provided all other requirements of section 402(c)(3) of the Code, except the 60-day requirement, are met with respect to such contribution, Amount 1 will be considered a rollover contribution within the meaning of section 402(c)(3) 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 that may be applicable thereto.

This ruling 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.

If you wish to inquire about this ruling, please contact at

Sincerely,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:

» Deleted copy of ruling letter
» Notice of Intention to Disclose