PLR 1026040: IRS waived the 60-day rollover deadline after a clerical deposit error

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer whose distribution from a tax-sheltered annuity was mistakenly deposited into a Roth IRA instead of the traditional IRA the taxpayer had instructed the financial institution to establish. The institution later acknowledged the clerical error, and no distributions or withdrawals had been made from the Roth IRA. The IRS granted the taxpayer 60 days from the ruling date to contribute the amount to a rollover IRA, provided the other rollover requirements were met. The ruling did not authorize a rollover of a required minimum distribution and assumed that the relevant IRAs otherwise qualified under the Code.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover deadline after a financial institution mistakenly deposited a plan distribution into a Roth IRA?
• Outcome: approved
• Key authorities: IRC §§ 401(a)(9), 402(c), 403(b), 408, and 408A; Rev. Proc. 2003-16; IRC § 6110(k)(3)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE 201026040

WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

APR 08 2010

Uniform Issue List: 402.00-00

SE: T: EP: RA: T1

Re: Control Number:

Legend:

Taxpayer A = [illegible]
Taxpayer B = [illegible]
Plan C = [illegible]

Financial Institution D = [illegible]

Roth IRA E = [illegible]
Financial Institution F = [illegible]
Financial Institution G = [illegible]

Amount 1 = [illegible]

Dear [illegible]:

This is in response to a request for a private letter ruling dated January 25, 2010, as
supplemented by additional information dated March 2, 2010, in which you request a
waiver of the 60-day rollover requirement contained in section 402(c)(3) of the Internal
Revenue Code ("Code"), regarding the distribution of Amount 1 from Plan C maintained
with Financial Institution D.

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

Taxpayer A, age 65, at the time of the distribution of Amount 1 from Plan C, asserts that
her 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 Financial Institution F to follow Taxpayer

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A’s instructions. Taxpayer A further asserts that Amount 1 has not been used for any
purpose.

Taxpayer A participated in Plan C, a tax sheltered annuity under section 403(b) of the
Code. The assets of Plan C are held by Financial Institution D. On [illegible],
Taxpayer A met with a representative of Financial Institution F and completed a form to
open a traditional IRA under section 408(a) of the Code with Financial Institution F. In
[illegible], Amount 1 was distributed from Plan C. A check totaling Amount 1, made
payable to Taxpayer A’s IRA, was delivered to Financial Institution F. However, due to
a clerical error, Amount 1 was deposited into Roth IRA E under section 408A of the
Code instead of Taxpayer A’s newly created traditional IRA. Subsequent to the deposit
of Amount 1, Financial Institution F reorganized and became known as Financial
Institution G. The error was not discovered until [illegible]. By letter dated,
[illegible], Financial Institution G acknowledged that the check totaling Amount 1
was improperly coded causing it to be deposited into Roth IRA E instead of a traditional
IRA. No taxes were paid on this transaction as it was assumed the deposit of Amount 1
would be to a traditional IRA, which would not be a taxable event until distributions were
made. There have been no distributions or withdrawals from Roth IRA E subsequent to
the deposit.

Based on the above facts and representations, you request 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.

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) of the Code 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)(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)
of the Code.

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

201026040

Section 401(a)(31) of the Code 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 sections
408(d)(3)(I) and 402(c)(3)(B) 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 the documentation submitted by Taxpayer is consistent
with her assertion that her failure to accomplish a timely rollover of Amount 1 was
caused by an error by Financial Institution F.

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 C
and Taxpayer is granted a period of 60 days from the issuance of this letter ruling to
contribute Amount 1 into 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 contributions, Amount 1 and 2 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 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.

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If you wish to inquire about this ruling, please contact
[illegible], [illegible], at ([illegible]) [illegible]-[illegible].

Sincerely yours,

Carlton A. Watkins

Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice 437