PLR 1031039: IRS waived the 60-day rollover deadline after misleading financial advice

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer who withdrew funds from two IRA annuities and deposited the proceeds into a taxable account. The taxpayer said a financial adviser failed to explain that the annuities were IRAs, that the withdrawals would be taxable, and how to open a qualified rollover account. The taxpayer represented that the funds remained in the account and had not been used for another purpose. The IRS granted 60 days from the ruling date to contribute the amount to a rollover IRA or another eligible retirement plan, subject to the other requirements of IRC § 408(d)(3).

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline after misleading advice from a financial adviser?
• Outcome: Approved
• Key authorities: IRC §§ 72, 401(a)(9), and 408(d); Rev. Proc. 2003-16

Full text (IRS public release)

201031039

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAY 12 2010

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend:

Taxpayer A = **
IRA Annuity A = **
IRA Annuity B = **
Account 1 = **
Amount 1 = $**
Amount 2 = $**
Amount 3 = $**

Financial Institution A = ***

Financial Institution B = ***

Dear ****,

This is in response to your request dated **, as supplemented by
communication dated **, 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”).

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

Taxpayer A, age **, represents that he maintained IRA Annuity A and IRA Annuity B with
Financial Institution A. Taxpayer A asserts that his failure to accomplish a rollover of
Amount 3 within the 60-day period prescribed by section 408(d)(3) of the Code was due

201031039

Page 2

to misleading advice and instruction given to Taxpayer A by a financial advisor at
Financial Institution B.

In response to financial conditions adversely affecting Financial Institution A, Taxpayer A
took total distributions from IRA Annuity A and IRA Annuity B and made net deposits of
Amount 1 and Amount 2, respectively, from the proceeds of the IRA annuities into
Account 1, a nonqualified, taxable account with Financial Institution B. Due to certain
health issues, Taxpayer A did not realize at this point in time that the two annuities were
IRA type accounts. Taxpayer A effectuated the fund withdrawals through a financial
advisor at Financial Institution B, who was previously responsible for having invested
Taxpayer A’s money in IRA Annuity A and IRA Annuity B. The financial advisor did not
inform Taxpayer A that the distributions from IRA Annuity A and IRA Annuity B would be
taxable when withdrawn and subject to high surrender charges. Taxpayer A represents
that the whole purpose for removing his funds from the IRA annuities with Financial
Institution A was to prevent further loss in value of his investments. Taxpayer A
represents that he did not become aware of the taxability of Amount 3 (Amount 1 and 2)
until Taxpayer A’s accountant was furnished two Forms 1099-R that Taxpayer A had
received from Financial Institution A. Taxpayer A represents that the financial advisor at
Financial Institution B who effectuated the fund withdrawals and who knew that the
distributions were from IRA annuities failed to alert him both to the consequences for
removing the funds from his IRA annuities and how to open a qualified rollover account.
Amount 3 remains in Account 1 and has not been used for any other purpose.

Based on the above facts and representations, you request a ruling that the Internal
Revenue Service (“Service”) waive the 60-day rollover requirement with respect to the
distribution of Amount 3 contained in section 408(d)(3) of the Code.

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

(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)).

201031039

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) or section
408(b)(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.

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 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, 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 documentation submitted by Taxpayer A demonstrates
that his failure to accomplish a timely rollover was caused by misleading advice and
instruction received from a financial advisor at Financial Institution B, who should have
ensured that Taxpayer A would complete a timely rollover of Amount 3.

Therefore, pursuant to section 408(d)(3)(i) of the Code, the Service hereby waives the
60-day rollover requirement with respect to the distribution of Amount 3. Taxpayer A is
granted a period of 60 days from the issuance of this ruling letter to contribute Amount 3
into a rollover IRA or other eligible retirement plan. 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 3 will be considered a rollover contribution within the meaning
of section 408(d)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to be distributed
by section 401(a)(9) 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.

201031039

If you wish to inquire about this ruling, please contact ** (Identification
Number **) at () -**. Please address all correspondence to

Sincerely yours,

Carlton A. Watkins, Manager,
Employee Plans Technical Group 1