PLR 1027061: The IRS waived the 60-day IRA rollover requirement after a bank error

Plain-English summary

The IRS waived the 60-day rollover requirement for an IRA distribution after a bank employee deposited the funds into a non-IRA account instead of the rollover IRA specified in the taxpayer's instructions. The taxpayer represented that the distributed amount had not been used and that the bank acknowledged its employee's error. The taxpayer was given 60 days from the ruling date to contribute the amount to a rollover IRA, subject to the other rollover requirements. The ruling did not authorize a rollover of required minimum distributions.

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement after a financial institution's error?
• Outcome: approved
• Key authorities: IRC §§ 72, 408(d)(1), 408(d)(3), 408(d)(3)(I), and 408(d)(3)(E); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224 201027061

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

APR 15 2010

XXXXX SE:T:EP:RA:T2
XXXXX
XXXXX

Legend:

Taxpayer A= XXXXX
Bank M= XXXXX
Bank O= XXXXX
IRA X= XXXXX
Account Y= XXXXX
Amount S= XXXXX
Amount T= XXXXX
Amount U= XXXXX
Date1= XXXXX
Date 2 = XXXXXX
Date 3 = XXXXX
Date 4 = XXXXX

Dear XXXXX:

XXXXX

Page 2 201027061

This is in response to your June 24, 2009 letter, as supplemented by additional
correspondence dated September 28, 2009 submitted on your behalf, in which
you requested 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 your
ruling request.

Taxpayer A, age XXXXX represents that she received a distribution from IRA X
of Amounts S and T, totaling Amount U. Taxpayer A asserts that her failure to
accomplish a rollover of Amount U within the 60-day period prescribed by
Section 408(d)(3) of the Code was due to a Bank M employee’s failure to follow
Taxpayer A’s instructions to transfer Amount U from IRA X into an IRA held by
Bank O, which led to Amount U being placed in a non-IRA account. Taxpayer
asserts that Amount U has not been used for any purpose.

Taxpayer A represents that on Date 1 she provided written instructions to Bank
M to rollover Amount U from IRA X to a qualified IRA, held by Bank O. Bank M
transferred a check for Amount S on Date 2, and a check for Amount T on Date 3
to Account Y. The distribution was transferred in the form of two separate
checks because Amount S was a money redemption fund, which could be
immediately distributed, whereas Amount T was a liquidated mutual fund, which
by law could not be immediately disbursed.

The transfer of Amount U from IRA X to Account Y was intended to be used to
purchase an annuity within a new IRA account. However, an employee of Bank
M deposited Amount S and Amount T respectively into Account Y, instead of a
traditional IRA. Taxpayer A asserts that on or about Date 4, she discovered that
Amount U had not been properly rolled over. Bank M acknowledged that the
failure was due to an error of one of its employees.

Based upon the above facts and representations, you request that the Internal
Revenue Service waive the 60-day rollover requirement contained in Section
408(d)(3) of the Code with respect to the distribution of Amount U.

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 to whose benefit the account is maintained if:

201027061

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 he 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)(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.

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 includible in gross income because of the application of
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).

Revenue Procedure 2003-16, 2003-4 I.R.B. 359, 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; and, (4) the time elapsed since the distribution
occurred.

The information and documentation submitted by Taxpayer A is consistent with
her assertion that her failure to accomplish the rollover within the 60-day period
prescribed by Section 408(d)(3) of the Code was due to an error by Bank M

201027061

which led to Amount U being placed in a non-IRA account instead of being
transferred to a rollover IRA.

Therefore, pursuant to Section 408(d)(3)(I) of the Code, the IRS hereby waives
the 60-day rollover requirement with respect to the distribution of Amount U.
Taxpayer A is granted a period of 60 days from the issuance of this ruling letter
to contribute Amount U into a rollover IRA. Provided all other requirements of
Section 408(d)(3) of the Code, except the 60-day rollover requirement are met
with respect to such contribution, Amount U will be considered a rollover
contribution within the meaning of Section 408(d)(3) of the Code.

Please note that, pursuant to Section 408(d)(3)(E) of the Code, this ruling does
not authorize the rollover of Code Section 401(a)(9) minimum required
distributions.

No opinion 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 hereto.

This ruling is directed solely 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 have any questions regarding this ruling, please contact XXXXX,
SE:T:EP:RA:T2, I.D. No. at XXXXX.

Sincerely yours,

[illegible]

Donzell H. Littlejohn, Manager
Employee Plans Technical Group 2