PLR 1021039: IRS waived the 60-day IRA rollover deadline after a bank error

Plain-English summary

The IRS waived the 60-day rollover deadline for a taxpayer who intended to roll over an IRA distribution into a new IRA but whose bank placed the funds in a non-IRA account. The bank acknowledged that its staff misunderstood the source of the funds and failed to direct the taxpayer to complete the deposit correctly. The IRS granted 60 days from the ruling letter to contribute the amount to a rollover IRA, subject to the other rollover requirements. The ruling did not authorize the rollover of required minimum distributions.

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement after a bank failed to follow the taxpayer's instructions?
• Outcome: Approved
• Key authorities: IRC §§ 72, 401(a)(9), 408(d)(3), 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

Uniform Issue List: 408.03-00

MAR 03 2010

Legend:
Taxpayer A = ***
Bank B = ***
Financial Institution C = ***
IRA X = ***
Account Y = ***
Amount A = ***
Amount B = ***
Date 1 = ***
Year 1 = ***

Dear ***:

This is in response to your letter dated October 6, 2009, as supplemented by
additional correspondence submitted on November 12, 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”).

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

Taxpayer A, age , represents that he received a distribution totaling Amount A
from IRA X, an individual retirement annuity under section 408(b) of the Code.
Taxpayer A asserts that his failure to accomplish a rollover within the 60-day
period prescribed by section 408(d)(3) of the Code was due to the failure of a
representative of Bank B to follow Taxpayer A’s instructions which led to the
placement of Amount A in a non-IRA account. Taxpayer A further represents that
Amount A has not been used for any other purpose.

On Date 1, Taxpayer A closed out IRA X with Financial Institution C, intending to
open up a new IRA with Bank B in order to improve his investment return. On
the same day, Taxpayer A received his required minimum distribution from IRA X
of Amount B, and took a check for the remainder, Amount A, to Bank B.
Taxpayer A represents that he communicated to a representative at Bank B his
intention to rollover Amount A to an IRA. However, Bank B, by letter dated
August 31, 2009, states that its staff misunderstood the origin of Taxpayer A’s
funds, and consequently failed to direct Taxpayer A on correctly completing his
deposit slip so as to rollover Amount A to an IRA. As a result, Amount A was
placed in a non-IRA account, Account Y. It was not until the Internal Revenue
Service reviewed Taxpayer A’s Year 1 tax return, and notified him of a
discrepancy in his tax information, that Taxpayer A realized he had deposited
Amount A in a non-IRA account.

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.

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.

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 by Taxpayer A is consistent with his assertion that his
failure to accomplish a timely rollover was due to the failure of a representative of
Bank B to follow Taxpayer A’s instructions which led to the placement of Amount
A in a non-IRA account.

Page 4

Accordingly, under the facts and documentation presented by Taxpayer A, the
Service hereby waives the 60-day rollover requirement under section 408(d)(3)(I)
of the Code, with respect to the distribution of Amount A from IRA X. Taxpayer A
is granted a period of 60 days from the issuance of this ruling letter 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.

In accordance with section 408(d)(3)(E) of the Code, this ruling does not
authorize the rollover of amounts that were required to be distributed by section
401(a)(9) of the Code, made applicable to an IRA pursuant to Code section
408(a)(6).

This letter expresses no opinion as to whether the IRA described herein satisfied
the requirements of section 408 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.

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 contact ***. Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Donzell Littlejohn, Manager
Employee Plans Technical Group 2

Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose

cc: ***