PLR 1122031: IRS waives the 60-day rollover deadline after a financial institution's distribution error

Plain-English summary

An individual received an IRA distribution that was larger than intended because a financial institution initiated the wrong amount. The individual returned the excess to the IRA, but the 60-day rollover period had expired by the time the institution recognized its error. The IRS determined that the delay resulted from the financial institution's mistake and waived the 60-day requirement for the returned amount. The amount would qualify as a rollover contribution if the other requirements of section 408(d)(3) were met.

Ruling snapshot

• Question: May the individual roll the excess IRA distribution back into the IRA after the 60-day period?
• Outcome: Approved, subject to the other requirements of section 408(d)(3).
• Key authorities: IRC §§ 72, 401, 408, 6110; 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

MAR 07 2011

Uniform Issue List: 408.03-00

T:EP:RA:T1

Legend:

Taxpayer A = ***
IRA B = **
Financial Institution D = **
Financial Institution E = **
Financial Institution F = **
Company G = **
Amount 1 = $**
Amount 2 = $**
Amount 3 = $*****

Dear ******:

This is in response to your request received in this Office ******,
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 represents that he requested and received a distribution of Amount 1
from Individual Retirement Account (IRA) B. Taxpayer A asserts that the failure
to roll over Amount 2 within the 60-day period was due to the failure of Financial
Institution D, investment advisor for Company G, to initiate for distribution the
correct amount of funds. Taxpayer A represents that the funds have not been
used for any other purpose.

Taxpayer A represents that he requested a distribution of Amount 1 from IRA B
with Financial Institution E. Taxpayer A intended the distribution to include all of
his liquid assets in Company G. After receiving Amount 1 from IRA B on
***, Taxpayer A received notice from Financial Institution D that the
distribution amount was incorrect, and that Taxpayer A had exceeded the
amount of liquid assets he could withdraw based on the partnership interest that
IRA B held in Company G. Financial Institution D acknowledged their distribution
error by letter dated ***, and requested that Taxpayer A return
Amount 2 to the partnership. Financial Institution D’s recognition of its error
occurred after the expiration of the 60-day rollover requirement.

In accordance with the instructions of Financial Institution D, Taxpayer A
deposited Amount 2 into IRA B on ***, and on the same day,
Financial Institution E wired the Amount 2 funds to Financial Institution F,
custodian for Company G. Financial Institution D noted that Taxpayer A’s actual
distribution from IRA B for should have been Amount 3 (Amount 1 less
Amount 2) and requested that Financial Institution E issue a corrected *** 1099-
R for Amount 3.

Based on the above facts and representations, you request a ruling that the
Internal Revenue Service (“Service”) waive the 60-day rollover requirement with
respect to Amount 2 contained in section 408(d)(3) of the Code in this instance.

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)(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 with his assertion that his failure to accomplish a timely rollover was
caused by an error on the part of Financial Institution D to initiate for distribution
the correct amount of funds.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the contribution made by
Taxpayer A of Amount 2 into IRA B. 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 rollover contribution within the
meaning of section 408(d)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 408(a)(6) 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 ***
(Identification Number **) at () -. Please address all
correspondence to ***.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1