PLR 1046020: IRS waives the 60-day rollover requirement after an erroneous tax withholding

Plain-English summary

The IRS considered a taxpayer's request to waive the 60-day rollover requirement after a broker mistakenly caused tax withholding from an individual retirement account distribution. The taxpayer deposited the withheld amount into another IRA after learning of the mistake. The IRS waived the 60-day requirement under section 408(d)(3)(I), provided all other rollover requirements were satisfied. The ruling illustrates that an error by a financial institution can support a waiver on the taxpayer's specific facts.

Ruling snapshot

• Question: May the IRS waive the 60-day rollover requirement for the amount mistakenly withheld from the IRA distribution?
• Outcome: Approved
• Key authorities: IRC § 408(d)(3)(I); 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

201046020

AUG 24 2010

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend:

Taxpayer A =

Broker A =

IRA A =

IRA B =

Company A =

Company B =

Company C =

Amount 1 =

Amount 2 =

Amount 3 =

Amount 4 =

Date 1 =

Date 2 =

Date 3 =

Dear

This is in response to a ruling request submitted by your authorized representative dated September 11, 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”).

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

Taxpayer A, age 62, represents that she received a distribution from her individual
retirement account (IRA A) totaling Amount 1 from Company A. Taxpayer A asserts
that the failure to accomplish a rollover of Amount 2 within the 60-day period prescribed
by section 408(d)(3) of the Code was due to a mistake made by Broker A. Taxpayer A
further represents that Amount 2 has not been used for any other purpose.

Based on advice from Broker A, Taxpayer A instructed Broker A to execute a trustee-to-
trustee transfer of Amount 1 from IRA A to IRAs with Company B. While executing the
transfer, Broker A’s office mistakenly checked a block on the form submitted to
Company A that caused the withholding of 10% for federal taxes and 10% for state
taxes. On Date 1, Amount 1 was withdrawn from IRA A and Amount 2 was withheld for
taxes (Amount 3 withheld for federal taxes plus Amount 3 withheld also for state taxes).
On Date 2, Amount 4, (Amount 1 minus Amount 2) was deposited into IRAs with
Company B.

Taxpayer A and Broker A became aware of Amount 2 being mistakenly withheld for tax
purposes subsequent to receiving an original and a corrected Form 1099R from
Company A in 20 . Taxpayer A deposited Amount 2 into IRA B on Date 3.

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 Amount 2 which was mistakenly withheld for
taxes.

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

201046020

(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 information presented and the documentation submitted by Taxpayer A is
consistent with her assertion that the failure to accomplish a timely rollover of Amount 2
was due to a mistake made by Broker 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 2 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 2 will be considered a
valid rollover contribution to IRA B within the meaning of section 408(d)(3) of the Code.

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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 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 ,

SE:T:EP:RA:T1,
Sincerely yours,
Carlton A. Watkins
Carlton A. Watkins, Manager
Employee Plans Technical Group 1
Enclosures:

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

cc: