PLR 1029020: IRS waives the 60-day rollover requirement after a fund-registration error

Plain-English summary

An individual asked the IRS to waive the 60-day deadline for rolling an IRA distribution into an IRA investment. A fund was not registered as a qualified IRA investment with the original institution, so the distribution was placed in a taxable, non-IRA account despite the taxpayer's intent. The taxpayer did not use the funds for another purpose, and documentation from the fund's financial institution acknowledged the error. The IRS granted the waiver under IRC § 408(d)(3)(I), subject to the other rollover requirements.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement for the distribution of Amount S from IRA X?
• Outcome: approved
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), 408(d)(3)(A), 408(d)(3)(B), 408(d)(3)(D), 408(d)(3)(E), 408(d)(3)(I), and 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

201029020

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

APR 26 2010

Uniform Issue List: 408.03-00

SE:T:EP:RA:T2

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXX

Financial Institution M = XXXXXXX

Financial Institution N = XXXXXXX

Financial Institution O = XXXXXXX

IRA X = XXXXXXX

Fund P = XXXXXXX

Account G = XXXXXXX

Amount S = XXXXXXX

Date 1 = XXXXXXX

Date 2 = XXXXXXX

Date 3 = XXXXXXX

Date 4 = XXXXXXX

Date 5 = XXXXXXX

Date 6 = XXXXXXX

Dear XXXXXXX:

This is in response to your letter dated July 30, 2009 as supplemented by
additional correspondence submitted on November 2, 2009, submitted on your
behalf by your authorized representative, 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 **, represents that he received a distribution from IRA X held by
Financial Institution M totaling Amount S. Taxpayer A asserts that his failure to
accomplish a rollover of Amount S within the 60-day period prescribed by section
408(d)(3) of the Code was due to an error by an employee of Financial Institution
O, which led to Amount S being placed into a non-IRA account. Taxpayer A
represents that Amount S has not been used for any other purpose.

On Date 1, Taxpayer A contacted Financial Institution O and indicated that he
would like to rollover Amount S from IRA X to an IRA to be established at
Financial Institution N to invest in Fund P. Taxpayer A was advised by an
individual at Financial Institution O, the General Partner of Fund P, to transfer
Amount S from IRA X to Financial Institution N, which held the funds for Financial
Institution O in Account G. Taxpayer A was assured that the transfer of funds
would be accomplished as a tax-free rollover. On Date 2, Taxpayer A completed
the subscription documents to transfer Amount S from IRA X to an investment
account in Fund P which indicate that the investment in Fund P was being made
on behalf of his IRA. On Date 3, Taxpayer A received a check for the full amount
of IRA X (Amount S). On Date 4, Taxpayer A transferred Amount S to Account
G.

Due to an error made by Financial Institution O, Amount S was placed into a non-
retirement taxable account. Documentation from the President and CEO of
Financial Institution O admits that Financial Institution O erred in failing to register
the Fund maintained by Financial Institution N with Financial Institution M as a
qualified IRA investment. As such, when Taxpayer A requested a tax-free
rollover, Financial Institution M treated the withdrawal as a distribution rather than
a rollover. Thus, Financial Institution M issued a 1099-R on Amount S because
the Fund was not recognized as a registered qualified investment by Financial
Institution M.

On Date 5, the fund manager of Financial Institution O was notified that Amount
S had not been processed as tax free rollover. On Date 6, Taxpayer A received
a 1099-R from Financial Institution M and realized that the funds had not been
handled according to his intent.

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 S.

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:

(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)(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
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

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Page 4

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, 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
his assertion that his 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 Financial
Institution O which led to Amount S being placed in a non-IRA account.

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 S.
Provided all other requirements of section 408(d)(3) of the Code, except the 60-
day rollover requirement are met with respect to Amount S which was placed in
IRA Y will be considered a rollover contribution within the meaning of section
408(d)(3) of the Code.

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 XXXXXXX (ID
XXXXXXXX) at () -****.

Sincerely yours,

[illegible]
Donzell H. Littlejohn, Manager
Employee Plans Technical Group 2

Enclosures:
Notice of Intention to Disclosure
Copy of deleted ruling letter

CC: XXXXXXX