PLR 1031041: IRS waived the 60-day rollover deadline after an investment manager misdirected an IRA distribution

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer whose IRA distribution was mistakenly deposited into a joint non-IRA brokerage account. The taxpayer had instructed an investment manager to roll the distribution into an existing IRA, but the manager misunderstood the instructions. The taxpayer represented that the money had not been used for another purpose. The IRS gave the taxpayer 60 days from the ruling date to contribute the amount to a rollover IRA, provided the other rollover requirements were met.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline after a financial institution error?
• Outcome: Approved
• Key authorities: IRC §§ 72, 401(a)(9), and 408(d)(1), (3); Rev. Proc. 2003-16; Treas. Reg. § 1.402(c)-2, A-7

Full text (IRS public release)

201031041

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAY 14 2010

Uniform Issue Code: 408.03-00

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T.EP.RA.T4

Legend:
Taxpayer A = XXXXXXXXXXXX
Individual B = XXXXXXXXXXXX
IRA X = XXXXXXXXXXXX
XXXXXXXXXXXX
Amount D = XXXXXXXXXXXX
Bank T = XXXXXXXXXXXX
Financial Institution C = XXXXXXXXXXXX
Date 1 = XXXXXXXXXXXX
Year M = XXXXXXXXXXXX
Dear XXXXXXXXXX

This is in response to your ruling request dated November 1, 2009, supplemented by a
letter dated December 14, 2009, submitted 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”) for a distribution from IRA X.

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

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Taxpayer A, age 51, represents that on Date 1 he received a distribution totaling
Amount D from IRA X. Taxpayer A asserts that his failure to accomplish a rollover within
the 60-day period prescribed by section 408(d)(3) of the Code was due to the failure of
Individual B, an employee of Financial Institution C, to follow his instructions which led
to Amount D being deposited into a non-IRA account. Taxpayer A further represents
that Amount D has not been used for any other purpose.

Taxpayer A maintained IRA X with Bank T. Bank T closed and required Taxpayer A to
take a distribution from IRA X. Taxpayer A states that the payout was in the form of a
check for Amount D. Taxpayer A instructed Individual B, his investment manager of
many years, to take the check and roll it over into a pre-existing IRA maintained at
Financial Institution C. Instead Individual B deposited Amount D into Taxpayer A’s joint
non-IRA brokerage account. Taxpayer A was unaware that Amount D had not been
deposited into an IRA until Year M when he began preparing his federal income tax
return.

In a letter dated December 20 Individual B, states that he misunderstood
Taxpayer A’s verbal instructions on how to invest Amount D and that he did not deposit
Amount D into an IRA at Financial Institution C, but erroneously deposited Amount D
into Taxpayer A’s joint non-IRA brokerage account with Financial Institution C.

Based on the facts and representations, a ruling is requested that the Internal Revenue
Service waive the 60-day rollover requirement with respect to the distribution of
Amount D.

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 account is maintained if:

1) 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

2) the entire amount received (including money and 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

201031041
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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 one-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)(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.

Revenue Procedure 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) 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 and documentation submitted by Taxpayer A, is consistent with his
assertion that his failure to accomplish a timely rollover was due to the failure of
Individual B to follow the instructions given by Taxpayer A, which led to Amount D being
deposited into a non-IRA account.

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 D from IRA X.
Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to
contribute Amount D into a rollover IRA. 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 D will be considered a rollover contribution within the meaning of
section 408(d)(3) of the Code.

201031041
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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 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 by others as precedent.

A copy of this ruling is being sent to your authorized representative in accordance with a
power of attorney on file with this office.

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

Sincerely yours,

Laura B. Warshawsky, Manager,
Employee Plans, Technical Group 4

Enclosures:
Deleted Copy of Ruling Letter

Notice of Intention to Disclose