PLR 1043044: IRS waived the 60-day IRA rollover deadline after a government agency delayed returning the funds

Plain-English summary

The IRS considered a request to waive the 60-day deadline for rolling an IRA distribution back into an IRA. The taxpayer had directed the IRA provider to send the funds to a government agency because of a disputed liability. After the taxpayer won the appeal and the liability was reduced to zero, the agency did not promptly return the funds to the IRA and instead transferred them to another company after the rollover deadline. The IRS found that the delay caused the missed deadline and waived the requirement under IRC § 408(d)(3)(I). The amount placed into a second IRA would be treated as a rollover contribution if the other requirements of section 408(d)(3) were met.

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement when an agency failed to return the funds promptly after a successful tax-liability appeal?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(1), 408(d)(3)(A), 408(d)(3)(B), 408(d)(3)(D), 408(d)(3)(I), and 6110(k)(3); IRC § 72; 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

August 4, 2010

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend:

Taxpayer A =

Company A =

IRA A =

IRA B =

Amount A =

Agency A =

Employer A =

Dear

This is in response to a ruling request submitted by your authorized representative dated August 17, 2009, 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 [illegible], represents that he received a distribution from IRA A totaling Amount A. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to the failure of Agency A to timely effectuate the transfer of Amount A to IRA A.

Taxpayer A believed that he was not responsible for a liability assessed by Agency A and filed an administrative appeal to that effect. In spite of the pending appeal, Agency A started its collection activities. Faced with the threat of the loss of his employment with Employer A, Taxpayer A instructed the provider of IRA A to issue a direct payment to Agency A. On April [illegible], 20[illegible], the IRA provider transferred Amount A from IRA A to Agency A via check.

On June [illegible], [illegible], Agency A notified Taxpayer A that his appeal was successful, the assessment of tax had been cancelled, and the tax liability had been reduced to zero. Taxpayer A requested of Agency A that Amount A be immediately transferred directly to IRA A but Agency A failed to do so and transferred Amount A to Company A within [illegible] days of the expiration of the deadline for rolling over the withdrawal of Amount A from IRA A.

Amount A was placed into IRA B pending the issuance of a private letter ruling by the Internal Revenue Service (“Service”) waiving the 60-day rollover rule.

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

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)).

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) 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 assertions and accompanying documentation are consistent with Taxpayer A's claim that his failure to roll over Amount A within the requisite 60 days was caused by the failure of Agency A to timely transfer the funds (Amount A) to IRA A.

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 A from IRA A. 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 A, contributed to IRA B will be considered a rollover contribution within the meaning of section 408(d)(3) 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.

If you wish to inquire about this ruling, please contact [illegible], (I.D. #[illegible]) at [illegible].

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

CC: