PLR 1033040: IRS waives a rollover deadline after a financial-institution error

Plain-English summary

The IRS considered a taxpayer’s request to roll part of an IRA distribution into another IRA after the 60-day deadline had expired. The taxpayer stated that a financial-institution employee misunderstood his instructions and deposited the amount into a non-IRA product. The IRS waived the 60-day requirement and allowed the taxpayer 60 days from the ruling’s issuance to contribute the amount to a rollover IRA, provided the other requirements of section 408(d)(3) were met. The ruling did not authorize the rollover of dividends earned while the amount was outside an IRA.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day rollover deadline after a financial institution mishandled the intended rollover?
• Outcome: Approved
• Key authorities: IRC § 408(d)(3); Rev. Proc. 2003-16

Full text (IRS public release)

TAX EXEMPT AND

GOVERNMENT ENTITIES MAY 28 2010

DIVISION

Uniform Issue List 408.03-00

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Legend:

Taxpayer A = xxxxx

IRA X = xxxxx

Certificate of Deposit Y = xxxxx

Financial Institution D = xxxxx

Individual B = xxxxx

Regular Savings Account = xxxxx

Christmas Club Account = xxxxx
IRA Savings Account = xxxxx

Amount N = xxxxx

Amount O = xxxxx

Amount P = xxxxx

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

SE:T:EP:RA:T4

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Amount Q = xxxxx
Amount R = xxxxx
Date 1 = xxxxx

Date 2 = xxxxx

Dear xxxxx:

This is in response to a letter dated November 6, 2009, submitted on your behalf by
Financial Institution D, as supplemented by correspondence dated January 5 and 7
and February 13, 2010, requesting a letter ruling waiving the 60-day rollover
requirement contained in section 408(d)(3) of the Internal Revenue Code (“Code”).

The following facts and representations in support of the above request are
submitted under penalties of perjury:

Taxpayer A, age 67, represents that on Date 1, he received a distribution of Amount
N from his individual retirement arrangement (IRA X) maintained by Financial
Institution D and that he intended to roll over Amount R, a portion of Amount N, into
another IRA. Taxpayer A asserts that he failed to roll over Amount R into another
IRA due to error by Individual B of Financial Institution D. He further asserts that
Amount R has not been used for any purpose.

Taxpayer A maintained IRA X in the form of Certificate of Deposit Y. Certificate of
Deposit Y, subject to automatic renewal, was a 36-month certificate with a fixed
interest rate. As of its maturity date, Certificate of Deposit Y had an account value of
Amount N.

Taxpayer A maintains a 60-month Certificate of Deposit in another IRA at Financial
Institution D which is not the subject of this ruling request.

On Date 1, three days following the maturity date of Certificate of Deposit Y,
Taxpayer A went to Financial Institution D. His spouse accompanied him to
Financial Institution D to assist him with transactions he intended to complete. They
met with Individual B, a member service representative. Taxpayer A represents that
he requested that Amount O, a portion of Amount N, be distributed to him as follows:
10 percent of Amount O withheld for Federal income tax purposes; Amount P
transferred to a regular savings account Taxpayer A held jointly with his spouse
(Regular Savings Account) at Financial Institution D; and Amount Q, the remainder
of Amount O, distributed to him by check. Taxpayer A represents that Individual B
processed Amount O of IRA X in accordance with Taxpayer A’s instructions.

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Taxpayer A represents that upon completion of the processing of Amount O,
Individual B requested instructions from him as to the handling of the remaining
funds (Amount R) in the IRA. Taxpayer A represents that he informed Individual B
that he was looking for the best interest rate possible for the investment of Amount R
and that Individual B, in turn, informed him that the best interest rate being offered at
Financial Institution D at that time was being earned in the Christmas Club.

Copies of receipts Taxpayer A received on Date 1 from Financial Institution D, which
were submitted with this request show, by the time sequence of being printed, that
Individual B did complete the transactions regarding the disposition of Amount O
prior to initiating any transaction as to Amount R.

Amount R remained in Taxpayer's Christmas Club Account until Date 2, which was
more than 60 days after the distribution of Amount R from IRA X. On Date 2,
Amount R was transferred from Taxpayer A’s Christmas Club Account to Taxpayer
A's Regular Savings Account. Taxpayer A represents that he did not realize that
Amount R was not in an IRA until he noticed the large increase in his Regular

Savings Account and contacted the manager of Financial Institution D about the
increase.

A letter from Financial Institution D addressed to the Internal Revenue Service
confirms that on Date 1 Individual B misunderstood Taxpayer A’s intent to roll over
Amount R and/or committed errors while transacting Amount R which resulted in
Amount R being deposited into a non-IRA product.

Based on the above 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 distribution of Amount R 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) 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

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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 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) 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, 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 is
consistent with his assertion that his failure to accomplish a timely rollover of Amount

R distributed from IRA X was due to error by Individual B, an employee of Financial
Institution D.

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 R from IRA
X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter

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to contribute Amount R 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 R 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 any dividends earned on Amount R
while it was not invested in an IRA.

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 assumes that IRA X satisfied the qualification requirements of section
408 of the Code at all times relevant to this transaction.

This ruling 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.

If you wish to inquire about this ruling, please contact xxxxx, I.D. # xxxxx, by
telephone at 202-283-xxxx. Please address all correspondence to SE:T:EP:RA:T4.

Sincerely yours,

: LO 2? ;

CAu £2 lars AUF

Laura B. Warshawsky, Manager
Employee Plans Technical Group 4

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