PLR 1021037: IRS waived the 60-day rollover deadline after missing plan notice

Plain-English summary

The IRS waived the 60-day rollover deadline for a 75-year-old taxpayer who received a distribution from a qualified retirement plan. The plan administrator did not provide the written explanation about rollover rights and tax consequences required by section 402(f), and the taxpayer did not receive oral advice either. The taxpayer placed the funds in a checking account and later a certificate of deposit, without understanding that the distribution needed to be placed in another retirement vehicle. The IRS granted 60 days from the ruling letter to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement when the plan administrator failed to provide the required rollover notice?
• Outcome: Approved
• Key authorities: IRC §§ 72, 401(a)(9), 402(c), 402(f), and 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

MAR 03 2010

UI No. 402.00-00

XXXXXXXXXXXXX
XXXXXXXXXXXXX
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LEGEND:

Taxpayer A = XXXXXXXXXXXXXXXX
Employer M = XXXXXXXXXXXXXXXXX
Plan X = XXXXXXXXXXXXXXXXXXX
Company F = XXXXXXXXXXXXXXXXX
Financial Institution B = XXXXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXXXX
Date 1 = XXXXXXXXXXXXXXXXX
Date 2 = XXXXXXXXXXXXXXXXX
Date 3 = XXXXXXXXXXXXXXXXX

Dear XXXXXXXXX

This is in response to your ruling request dated March 9, 2009, as supplemented by a letter
dated January 29, 2010, in which you request a waiver of the 60-day rollover requirement con-
tained 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, age 75, represents that she received a distribution of Amount D from Plan X.
Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period pre-
scribed by section 402(c)(3) was due to the failure of Company F in failing to provide proper
notice of Taxpayer A’s right to elect an eligible rollover distribution as required under section
402(f) of the Code.

Taxpayer A represents that she was a participant in Plan X, an employee retirement plan
sponsored by Employer M which was a qualified plan as described in section 401(a) of the
Code. Company F was the administrator of Plan X. Taxpayer A states that she was contacted
by Company F regarding changing investments within Plan X. She informed Company F that
she did not want to make any risky investments and requested that Company F transfer
Amount D to Financial Institution B. On Date 1, Company F electronically transferred Amount
D from Plan X to Taxpayer A’s checking account with Financial Institution B. Taxpayer A

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represents that Company F did not provide her with any written advice or any direction regard-
ing the 60-day rollover rules and the tax consequences of this distribution as required in sec-
tion 402(f) of the Code, nor was oral advice given.

Taxpayer A states that, on Date 2, she told a representative of Financial Institution B that
Amount D were retirement funds. However, Taxpayer A did not understand that Amount D
should have been placed into another retirement vehicle. On Date 2, Amount D was placed in
a certificate of deposit, at Financial Institution B. Taxpayer A did not become aware of the tax
consequences of the distribution until Date 3, while consulting with her tax preparer. Taxpayer
A further represents that Amount D has not been used for any purposes.

Based on the facts and representations, a ruling is requested that the Internal Revenue Ser-
vice waive the 60-day rollover requirement with respect to the distribution of Amount D.

Section 402(a) of the Code provides that, except as otherwise provided in section 402, any
amount distributed from a trust described in section 401(a) that is exempt from tax under sec-
tion 501(a) of the Code shall be taxable to the distributee, in the taxable year of the distri-
butee in which distributed, under section 72 of the Code.

Section 402(c) of the Code provides rules governing rollovers of amounts from exempt trusts
to eligible retirement plans including IRAs. Section 402(c)(1) of the Code provides, in general,
that if any portion of an eligible rollover distribution from a qualified trust is transferred to an
eligible retirement plan, the portion of the distribution so transferred shall not be includible in
gross income in the taxable year in which paid.

Section 402(c)(3)(A) of the Code provides that, except as provided in subparagraph (B), para-
graph (1) shall not apply to any transfer of a distribution made after the 60th day following the
day on which the distributee received the property distributed.

Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60-day require-
ment under section 402(c)(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 be-
yond 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 402(c)(4) of the Code provides that an eligible rollover distribution shall not include
any distribution to the extent such distribution is required under section 401(a)(9).

Section 402(c)(8) of the Code defines an "eligible retirement plan" as (i) an individual retire-
ment account described in section 408(a) of the Code, (ii) an individual retirement annuity de-
scribed in section 408(b) of the Code (other than an endowment contract), (iii) a qualified trust,
(iv) an annuity plan described in section 403(a) of the Code, (v) an eligible deferred compen-
sation plan described in section 457(b) of the Code which is maintained by an eligible em-
ployer described in section 457(e)(1)(A), and (vi) an annuity contract described in section
403(b) of the Code.

Section 402(f) of the Code provides for a written explanation to recipients for distributions eli-
gible for rollover treatment. Section 402(f)(1) provides, in pertinent part, that the plan adminis-
trator of any plan shall, within a reasonable period of time before making an eligible rollover

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distribution, provide a written explanation to the recipient of the provisions under which the re-
cipient may have the distribution directly transferred to an eligible retirement plan and of the
provisions under which the distribution will not be subject to tax if transferred to an eligible re-
tirement plan within 60 days after the date on which the recipient received the distribution.

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, hospitaliza-
tion, 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 provided by Taxpayer A is consistent with Taxpayer A’s assertion that Tax-
payer A’s failure to accomplish a rollover of Amount D was due to the failure of Company F in
failing to provide proper notice of Taxpayer A’s right to elect an eligible rollover distribution as
required under section 402(f) of the Code.

Therefore, Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to
contribute Amount D to a rollover IRA. Provided all other requirements of section 402(c)(3) of
the Code, except the 60-day requirement, are met with respect to such contribution, the contri-
buted amounts will be considered a rollover contribution within the meaning of section
402(c)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to be distributed by
section 401(a)(9) 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 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 XXXXXXXX I.D. XXXXX at
XXXXXXXXXXXXX. Please address all correspondence to SE:T:EP:RA:T4.

Sincerely yours,

Laura Warshawsky, Manager
Employee Plans Technical Group 4

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