PLR 1034025: IRS declined to waive the 60-day IRA rollover requirement

Plain-English summary

The IRS considered a taxpayer who received a distribution from an IRA and deposited it into a high-interest checking account instead of a qualified IRA. The taxpayer later invested the money in nonqualified investments and asked the IRS to waive the 60-day rollover requirement, asserting that a financial institution had made an error. The IRS found that the application did not show the taxpayer intended to establish a rollover IRA and did not establish that the financial institution had been notified of that intent or had made an error. The IRS therefore treated the distribution as taxable and declined to waive the rollover requirement.

Ruling snapshot

• Question: May the IRS waive the 60-day IRA rollover requirement for the distribution?
• Outcome: Denied
• Key authorities: IRC §§ 72, 408(d)(1), 408(d)(3), 408(d)(3)(I), and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

201034025

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

JUN 04 2010

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

SE:T:EP:RA:T2

Legend:

Taxpayer A = ******

Financial Institution D = ******
Financial Institution E = ******

IRA X = ********
*******

Account 2 = ********
*******

Account 3 = ********
********

Amount 1 = **
Amount 2 = *
Amount 3 = *
Amount 4 = **

Date 1: = **
Date 2: = **

Dear **:

This is in response to a letter dated **, , supplemented by correspondence
dated *, , **, and **, * in which your
authorized representative requests, on your behalf, 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:

Page 2 of 4

Taxpayer A, age , was the owner of IRA X, a qualified annuity established and
maintained at Financial Institution D. In ** Taxpayer A received Amount 1 as a
distribution from Financial Institution D. On Date 1 Amount 2 was deposited in Account
2, Taxpayer A’s high interest checking account, at financial institution E. Taxpayer A
represents that he intended for Amount 1 to be rolled over into an individual retirement
arrangement (“IRA”). 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 financial
error.

Taxpayer A represents that he intended for Account 2 to be a qualified IRA, however it
was instead deposited into a high interest checking account. On Date 2, Taxpayer A
withdrew Amount 4 in three separate transactions. On this date, in three separate
transactions, Taxpayer A invested Amount 4 in various nonqualified investment vehicles
which were held in Account 3.

Taxpayer A became aware that Amount 1 had been distributed from IRA X and had not
been rolled over into another qualified IRA when he prepared his **** tax return. His tax
preparer notified him as to the taxable event.

Based on the above facts and representations, you request a ruling that the Internal
Revenue Service (“Service”) waive the 60-day rollover requirement contained in section
408(d)(3) of the Code with respect to the distribution of Amount 1 from qualified annuity
IRA X and its redeposit in Account 2.

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

Page 3 of 4

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)(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 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.

In this case, Taxpayer A claims that an error by Financial Institution E caused Amount 1
to be deposited in a high interest checking account rather than being deposited into a
rollover IRA. However, the application form completed by Taxpayer A fails to
demonstrate Taxpayer A intended that the distribution be rolled over to an IRA nor does
it demonstrate that Financial Institution E committed any error. Taxpayer A failed to
establish that Financial Institution E was on notice of his intent to rollover the
distribution.

Further, Taxpayer A is unable to provide either (1) a contemporaneous written
document (such as an application form or letter) establishing that Taxpayer A applied to
Financial Institution E for establishment of a rollover IRA, or (2) a written statement from
Financial Institution E that it had erred in placing Taxpayer A’s assets in a nonqualified
account.

Page 4 of 4

Therefore, Taxpayer A’s Date 2 deposit of Annuity funds (Amount 1) from IRA X into
Account 2 and their subsequent investments in nonqualified investment vehicles with
Financial Institution E is a taxable event under section 408(d)(1) of the Code for the ****
tax year, and the Service declines to waive the 60-day rollover requirement in this case.

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.

A copy of this letter has been sent to your authorized representative in accordance with
a power of attorney on file in this office.

If you wish to inquire about this ruling, please address all correspondence to
SE:T:EP:RA:T2.

Sincerely,

[illegible]