PLR 1124031: IRS waives the 60-day IRA rollover deadline after an advisor's withholding error

Plain-English summary

The IRS waived the 60-day rollover requirement for excess tax withholdings from substantially equal periodic payments from three IRAs. The taxpayer said a financial advisor's administrative error caused the additional withholdings, while the taxpayer received the same net quarterly payments as intended. The IRS granted 60 days from the ruling date to contribute the excess withholdings to an eligible tax-deferred retirement vehicle, provided the other rollover requirements were met. The ruling did not authorize rollover of amounts required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: Should the IRS waive the 60-day rollover requirement for excess withholdings caused by an advisor's error?
• Outcome: Approved.
• Key authorities: IRC §§ 408(d)(3), 408(d)(3)(I), 72(t), 401(a)(9); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224 201124031

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAR 21 2011

Uniform Issue List: 408.03-00 SE: T. EP. RA. T1

Legend:

Taxpayer A = ***

IRA B = *****

IRA C = *****

IRA D = ****

Financial Institution E = ******

Financial Institution F = ****

Financial Advisor G = ***

Amount 1 = $****

Amount 2 = $**

Dear ****:

This is in response to your request dated **, as supplemented by
communication dated ****, 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 inadvertently received a distribution of Amount 1 from
Individual Retirement Accounts (IRAs) B, C, and D. Taxpayer A asserts that the failure

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to roll over Amount 1 within the 60-day period was due to the failure of Financial Advisor
G to properly withhold taxes on distributions from IRAs B, C, and D for the year ****.
Taxpayer A represents that the funds have not been used for any other purpose.

Taxpayer A represents that he established a system of regular, substantially equal
periodic payments from IRAs B, C, and D through Financial Advisor G. IRAs B and C
were maintained with Financial Institution E and IRA D was maintained with Financial
Institution F. Originally, Taxpayer A opened IRA B and IRA C through Financial Advisor
G which was, at the time, affiliated with Financial Institution E. Later, Financial Advisor
G left Financial Institution E and affiliated itself with Financial Institution F, where
Taxpayer A opened IRA D. In ****, Taxpayer A established a system of quarterly
payments to ensure that each year he received a regular “substantially equal periodic
payment” consistent with section 72(t) of the Code. Taxpayer A established quarterly
payments that totaled, on a yearly basis, a gross amount approximately equal to Amount

2. In *, Financial Advisor G committed an administrative error. This error resulted in
   Taxpayer A receiving the same after-tax sum as he had quarterly since , but his
   withholdings mistakenly increased for by Amount 1. Thus, while Taxpayer A
   received the same net amount overall each quarter from IRAs B, C, and D, additional tax
   withholdings (totaling Amount 1) were also mistakenly taken from the respective IRAs.
   Taxpayer A realized the error when his tax returns were prepared in *** where he
   noticed a large refund due him from the incorrectly withheld funds by Financial Advisor
   G.

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 1 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

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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 Advisor G to correctly withhold amounts on Taxpayer A’s series
of substantially equal periodic payments from IRAs B, C, and D.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby waives the
60-day rollover requirement with respect to Amount 1 (excess withholdings) from IRAs
B, C, and D. Taxpayer A is granted a period of 60 days from the issuance of this ruling
letter to contribute Amount 1 into an eligible tax-deferred retirement vehicle. 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 1 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 401(a)(9) 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.

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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

Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose