PLR 1042042: IRS waived the 60-day IRA rollover deadline after an advisor's error

Plain-English summary

The IRS considered a request to waive the 60-day deadline for rolling an IRA distribution into an IRA annuity. A financial advisor deposited the funds into a nonqualified account instead of communicating the taxpayer's instructions to the receiving institution. The IRS found that the missed deadline resulted from the financial institution's error and that the amount had not been used for another purpose. It waived the deadline under IRC § 408(d)(3)(I) and gave the taxpayer 60 days from the ruling date to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement after a financial advisor caused the distribution to be deposited into a nonqualified account?
• Outcome: Approved
• Key authorities: IRC §§ 72, 408(d)(3)(A), 408(d)(3)(D), 408(d)(3)(I), and 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 27 2010

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Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend:

Taxpayer A =
IRA B =
Financial Institution C =
Annuity D =
Financial Institution E =
Financial Institution F =
Financial Institution G =
Amount 1 =
Amount 2 =
Amount 3 =
Amount 4 =

Dear :

This letter is in response to a request for a letter ruling dated December 2, 2009,
as supplemented by additional information dated March 10, April 1, May 15,
May 25, and June 21, 2010, from 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:

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Taxpayer A, age 52, represents that she took a distribution from IRA B totaling
Amount 1. Taxpayer A asserts that her failure to accomplish a rollover within the
60-day period prescribed by section 408(d)(3) of the Code was due to an error
by Financial Institution F. Taxpayer A further asserts that Amount 4 has not been
used for any purpose.

Taxpayer A maintained IRA B, an individual retirement account under section
408(a) of the Code with Financial Institution C. In April, 2008, Taxpayer A met
with her financial advisor at Financial Institution F. He recommended that
Taxpayer A transfer funds in IRA B to a variable annuity contract with Financial
Institution E because it promised a higher rate of return. He also suggested that
Taxpayer A’s spouse transfer Amount 2 from a non-IRA account to a similar
investment vehicle with Financial Institution E. On May 2, 2008, at Taxpayer A’s
request, Financial Institution C liquidated IRA B and mailed to Taxpayer A a
check totaling Amount 1. On May 6, 2008, Amount 1 was deposited in Taxpayer
A and her spouse’s joint checking account with Financial Institution G.

On June 3, 2008, the advisor from Financial Institution F went to Taxpayer A’s
home to arrange the transfer from IRA B to an IRA annuity with Financial
Institution E. Following the advisor’s instructions, Taxpayer A gave him one
check totaling Amount 3 for purchase of an IRA and non-IRA annuity with
Financial Institution E. On June 12, 2008, on Taxpayer A’s behalf, her financial
advisor at Financial Institution F deposited the check totaling Amount 3 with
Financial Institution E. This included most of the distribution from IRA B (Amount
4) as well as funds in her spouse’s non-IRA account (Amount 2). Taxpayer A
instructed her advisor that a portion of the check totaling Amount 4 be invested in
an IRA annuity. However, Taxpayer A’s intent was never communicated to
Financial Institution E by the advisor and Amount 3 was deposited in a non-
qualified account (Annuity D). The incorrect deposit was discovered in January
of 2009. Financial Institution F has acknowledged the error in writing.

Based on the above facts and representations, you request 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 4.

Section 408(d)(1) of the Code provides that, except as otherwise provided in
section 408(d) of the Code, 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 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 -

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(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) of the Code).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) of the Code
does not apply to any amount described in section 408(d)(3)(A)(i) of the Code
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) of the Code from an IRA which was not
includible in gross income because of the application of section 408(d)(3) of the
Code.

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.

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) 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 presented and the documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover of
Amount 4 was due to an error by Financial Institution F.

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
4 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of

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this letter ruling to contribute Amount 4 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 4 will be considered a rollover
contribution within the meaning of section 408(d)(3).

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.

A copy of this letter ruling has been 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 (I.D. # ); , at ( ) .

Sincerely yours,

[illegible]

Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

cc: