PLR 1029023: IRS waives two 60-day IRA rollover requirements after custodian delays

Plain-English summary

Two taxpayers asked the IRS to waive the 60-day deadline for rolling investment interests from their IRAs into successor IRAs. Their original custodian resigned and did not timely provide assignment forms needed to complete the transfers, despite repeated requests. The IRS found that the information and documentation supported the taxpayers' account of the custodian's error. It granted the waivers and gave them 60 days from the ruling letter's issuance to transfer the interests, subject to the other requirements of IRC § 408(d)(3).

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement for the investment interests distributed from IRA W and 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)(I), and 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

201029023

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:T4

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Legend:

Taxpayer A = XXXXXXXXXXX

Taxpayer B = XXXXXXXXXXX

Individual J = XXXXXXXXXXX

IRA W. = XXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX

IRA X = XXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX

IRA Y = XXXXXXXXXXX
XXXXXXXXXXXXX

IRA Z = XXXXXXXXXXX
XXXXXXXXXXXXX

Financial Institution A = XXXXXXXXXXX

Company S = XXXXXXXXXXX

Company T = XXXXXXXXXXX

Company L = XXXXXXXXXXX

Amount M = XXXXXXXXXXX

2

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Amount N = XXXXXXXXXXX
Date 1 = XXXXXXXXXXX
Date 2 = XXXXXXXXXXX
Date 3 = XXXXXXXXXXX
Date 4 = XXXXXXXXXXX
Date 5 = XXXXXXXXXXX

Date 6 = XXXXXXXXXXX

Period 1 = XXXXXXXXXXX
Period 2 = XXXXXXXXXXX

Dear XXXXXXXXX:

This is in response to your ruling request dated June 2, 2009, as supplemented
by correspondence dated August 6, 2009, and September 1, 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 (“Code”).

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

Taxpayer A, age 68, represents that he received a distribution of Amount M from
IRA W; and Taxpayer B, age 63, represents that she received a distribution of
Amount N from IRA X maintained by Financial Institution A. Taxpayer A and
Taxpayer B (Taxpayers) assert that they failed to accomplish a rollover within the
60-day period prescribed by section 408(d)(3) of the Code due to an error by
Financial Institution A.

The Taxpayers represent that, as part of their investments held in their respective
Individual Retirement Arrangements (IRAs), IRA W and IRA X, they held a
membership interest in Company S which is evidenced by Certificates of Limited
Liability Company Ownership. Company S is a closely held limited liability
company. All assets held by Company S are illiquid, and are comprised of
commercial and residential real property. The Taxpayers represent further that,
on Date 1, Financial Institution A, the trustee that held the investment, resigned

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

and sent a letter to the Taxpayers informing them of the following: (1) its
resignation effective Date 2, (2) the 60-day rollover requirement, and (3) that a
new trustee was needed to hold the investment. The letter also informed the
Taxpayers that if the proper paperwork was not received, Financial Institution A
would issue 1099-Rs, indicating a taxable distribution for the value of the
investment.

The Taxpayers' investment advisor, Individual J, prepared the paperwork to open
new IRA accounts with a successor custodian, Company T, and sent it to the
Taxpayers. The paperwork instructed them to complete the paperwork for new
accounts to be established, and to wait until they received assignment forms
from Financial Institution A to accompany the new account forms. On three
separate occasions during Period 1, Individual J contacted Financial Institution A
by phone, requesting confirmation that the assignment forms be prepared and
sent out, timely. On Date 3, Individual J sent the Company T IRA applications to
the Taxpayers for signature and instructed them to forward the applications to
Company T once the assignment forms had been received from Financial
Institution A. During Period 2, Individual J contacted Financial Institution A by
phone again, requesting confirmation that the assignment forms be prepared and
sent to the Taxpayers. Despite the requests, Financial Institution A did not send
out the forms, timely. On Date 4, the Taxpayers forwarded the IRA applications
to Company T without the assignment forms. Finally, on Date 5, Financial
Institution A delivered the assignment forms after the 60-day rollover period had
expired. Subsequently, on Date 6, IRA Y and IRA Z were established.

Based upon the foregoing facts and representations, you request a ruling that the
Internal Revenue Service waive the 60-day rollover requirement contained in
section 408(d)(3) of the Code with respect to the distributions of an investment
interest of Amount M from IRA W and an investment interest of Amount N from
IRA X.

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:

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

3

(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 received 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 not included 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)(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 and good
conscience, including casualty, disaster, or other events beyond the reasonable
control of the individual subject to such requirement. Only distributions that occur
after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of
the Code.

Rev. Proc. 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),
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, or 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 A and
Taxpayer B are consistent with their assertion that the failure to roll over their
respective distributions within the 60-day rollover period prescribed by section
408(d)(3) of the Code was due to an error by Financial Institution A.

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

4

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distributions of
Amount M from IRA W and Amount N from IRA X. The Taxpayers are granted a
period of 60 days from the issuance of this ruling letter to transfer the investment
interests of Amount M and Amount N to IRAs Y and Z, respectively.

Provided all other requirements of section 408(d)(3) of the Code, except the 60-
day requirement, are met with respect to such contributions, the contribution of
Amount M and Amount N to IRA Y and IRA Z, respectively, will be considered
valid rollover contributions within the meaning of section 408(d)(3) of the Code.

No opinion is expressed as to the tax treatment of the transactions described
herein under the provisions of any other section of either the Code or regulations,
which may be applicable thereto.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of
the Code provides that it may not be used or cited by others as precedent.

A copy of this letter is being sent to your authorized representative pursuant to a
Power of Attorney on file in this office.

If you wish to inquire about this ruling, please contact XXXXXXXXXXXXXX, ID
Number XXXXXXXX at XXXXXXXX. Please address all correspondence to

Sincerely yours,

[illegible]
Laura B. Warshawsky, Manager
Employee Plans, Technical Group 4

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