PLR 201007083: IRS waives the 60-day IRA rollover requirement after a custodian error

Plain-English summary

The taxpayer, age 57, held an individual retirement arrangement whose assets included a partnership interest. The taxpayer intended to roll over an amount from that IRA to another IRA, but the custodian apparently resigned and transferred the investment without the taxpayer's knowledge. The taxpayer later learned of the distribution after receiving Form 1099-R, and stated that the amount had not been used for another purpose. The IRS waived the 60-day rollover requirement under IRC § 408(d)(3)(I) and gave the taxpayer 60 days from the ruling's issuance to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement when a financial institution's error prevented a timely IRA rollover?
• Outcome: Approved, waiver granted
• Key authorities: IRC §§ 408(d)(1) and 408(d)(3)(A), (B), and (I); Rev. Proc. 2003-16

Full text (IRS public release)

201007083

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 25 2009
SE:T:EP:RA:T3

Uniform Issue List: 408.03-00

Legend:

IRA X =
Amount A =
Interest D =
Date 1 =
Date 2 =

Date 3 =

Company A =
Company B

Partnership A=

Dear:

This is in response to a request submitted on your behalf by your authorized representatives dated May 11, 2009, 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:

201007083

Page 2

You are 57 years old. You had an Individual Retirement Arrangement (IRA), IRA X, which was maintained by Company A. The assets of IRA X were invested in a partnership interest, Interest D, with Partnership A. You have stated that it was your intent to roll over Amount A from IRA X to an IRA with Company B. You assert that your failure to accomplish a rollover of Amount A was due to an error caused by Company A. You state that Amount A has not been used for any other purpose.

During 2007, Company A, and other financial institutions, were undergoing significant organizational changes due to a deteriorating economy. During 2007, Company A unilaterally resigned as custodian of IRA X and purportedly sent you notification of the need to roll over or transfer the assets within IRA X. You have stated that you received no notice of Company A’s resignation as Custodian of IRA X.

On or about Date 1, Company A purportedly transferred Interest D from IRA X to Partnership A. You assert that neither you nor Partnership A requested this transfer and that neither you nor Partnership A had notice of this transfer.

You have documented that Partnership A’s records reflect that Interest D remains to be held in IRA X with Company A. Partnership A maintains that no redemption or transfer activity has occurred in regards to Interest D.

You state that you only became aware of the distribution of Amount A from IRA X on or about Date 2, more than a year after the purported transfer when you began to inquire about moving IRA X to Company B due to the economic turmoil that was besetting Company A.

On Date 3, after making inquires with Company A concerning IRA X, you received a Form 1099R showing a distribution of Amount A from IRA X.

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 A contained in section 408 (d) (3) of the Code in this instance.

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.

201007083

Page 3

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) (I) of the Code provides that the Secretary may waive the 60- day requirement under sections 408 (d) (3) (A) 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.

Revenue Procedure 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) 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 you submitted is consistent with your assertion that your failure to accomplish a timely rollover was due to an error caused by an Company A.

201007083

Page 4

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 A from IRA X. You are granted a period of 60 days from the issuance of this letter ruling to contribute Amount A into a rollover IRA. Provided all other requirements of section 408 (d) (3) of the Code, except the 60-day requirement, are met with respect to such contribution, Amount A will be considered a rollover contribution within the meaning of section 408 (d) (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 which may be applicable thereto. This letter expresses no opinion as to whether IRA X satisfied the requirements of section 408 of the Code.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being sent to your authorized representative. If you wish to inquire about this ruling, please address all correspondence to SE:T:EP:RA:T3.

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

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

CC:
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