PLR 201049042: IRS waived the 60-day IRA rollover deadline after bank error

Plain-English summary

The IRS waived the 60-day deadline for an individual to roll an IRA distribution into another IRA. The taxpayer had instructed a bank to deposit the distribution into an IRA rollover account, but the bank instead opened a non-IRA certificate of deposit. The taxpayer did not discover the error until about a year later and had not used the money for another purpose. The IRS granted a new 60-day period to contribute an amount equal to the distribution to an IRA, provided the other rollover requirements were satisfied.

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement because a bank failed to follow the taxpayer's instructions?
• Outcome: approved
• Key authorities: IRC §§ 72 and 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

201049042

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

SEP 16 2010

Uniform Issue List: 408.03-00

[illegible handwritten notation]

Legend:
Taxpayer A:
Company M:
Year 1:

Date 1:
Amount M:
Annuity X:
Account Y:
Financial Advisor T:
Date 2:
Bank D:

Check N:

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Dear

This is in response to your letters dated March 5, 2010, July 17, 2010, and August 20, 2010, 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 _ was the owner of Annuity X, an Individual Retirement Annuity (IRA), maintained by Company M. Taxpayer A asserts that on Date 1 she liquidated Annuity X and received a distribution of Amount M on Date 2. Taxpayer A asserts that her failure to accomplish a rollover of Amount M within the 60 day period prescribed by section 408(d)(3) of the Code was due to bank error in not following Taxpayer A's instructions. Taxpayer A has not used Amount M for any other purposes.

During Year 1, Taxpayer A became concerned about the declining value of Annuity X. Taxpayer A made repeated requests to her financial advisor, Financial Advisor T, and informed him that she wished to withdraw her funds from Annuity X and invest the IRA funds in a safer investment. Financial Advisor T attempted to allay Taxpayer A's concerns by stating that the annuity would be safe and that the value of Annuity X would go up again. Over the next five months, however, Annuity X continued to decline in value loosing approximately one third of its value. Taxpayer A decided to transfer Annuity X on her own.

In response to Taxpayer A's request, on Date 1 Company M issued Check N in Amount M made payable to Taxpayer A. Check N contained the words “REASON: FULL SURRENDER IRA ...PLEASE CASH WITHIN 60 DAYS” on its

face.

On Date 2, ten days after Date 1, Taxpayer A delivered Check N in person to a representative of Bank D and explained that Check N represented the proceeds of an IRA distribution and that she wanted Amount M deposited in an IRA rollover account. However, Bank D used the proceeds of Check N to open a non-IRA certificate of deposit, Account Y, with a 13-month maturity period.

Taxpayer A did not learn that Account Y was a non-IRA account until approximately a year later when her new financial advisor alerted Taxpayer A that Annuity X was not rolled over into an IRA. Taxpayer A and her new financial advisor approached Bank D to designate the account as an IRA but Bank D refused.

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Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60-day rollover requirement, with respect to the distribution of Amount M.

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)(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)(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.

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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.

The information presented and documentation submitted by Taxpayer A is consistent her assertion that her failure to accomplish a rollover of Amount M within the 60-day period prescribed by section 408(d)(3) of the Code was due to Bank D's error in not following Taxpayer A's instructions

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 to Taxpayer A of Amount M. Pursuant to this ruling letter, Taxpayer A is granted a period of 60 days measured from the date of the issuance of this letter ruling to make a rollover contribution of an amount equal to Amount M to an IRA (or IRAs) described in Code section 408(a). Provided all other requirements of Code section 408(d)(3), except the 60-day requirement, are met with respect to such IRA contribution, the contribution will be considered a rollover contribution within the meaning of Code section 408(d)(3).

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.

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.

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If you wish to inquire about this ruling, please contact

Sincerely yours,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

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