PLR 1134025: IRS waives rollover deadlines after financial advisor fraud

Plain-English summary

A taxpayer received distributions from two IRAs intending to place the funds into an IRA annuity. The taxpayer says a financial advisor unlawfully deposited the combined amount into the advisor's personal account and used forged statements to make it appear that the funds were in the annuity. The IRS waived the 60-day rollover requirement for the two distributions and gave the taxpayer 60 days to contribute the combined amount into an eligible retirement plan or qualified IRA annuity. The waiver was based on the fraudulent and illegal actions of the advisor and was subject to the other rollover requirements. The ruling did not authorize rollovers of amounts required to be distributed under § 401(a)(9).

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement after a financial advisor fraudulently diverted the intended rollover funds?
• Outcome: Approved
• Key authorities: IRC §§ 72, 401(a)(9), 408(d)(1), 408(d)(3), and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

Gi » 2 WASHINGTON, D.C. 20224 >) 1 3 4 >) 5
TAX EXEMPT AND JUN 01 2011 291 C2
GOVERNMENT ENTITIES

Uniform Issue List: 408.03-00 “T° EP: RA: T4

HAKKKERERERKAEKKEAKRK EK
REKKKKEKIKREEK KERRI

HAKKKKKRAKKEKRKKKKKK ER

Legend:

Taxpayer OC odtooecck

IRA A PLLC teri ie rort re
2 4

IRA B CO a I I

IRA C me ERK KKI AIK RRR EER IKEAI RIK

Account A RAMANA IKAR IRE RRR IRARE IK

Amount 1 = s alalahalelelaialalahetatatatalel

Amount 2 = K ialalalalalelalahatelatabalatetel

Amount 3 = K alalelalalelaladalaiatabateteleteieiel

Financial Institution A me RRRAEREKKEREKEKKEKKKKKREK
Financial Institution B = KKK KEE KKREERERERERIEK

Financial Institution C = *** ees

REKKEKREKEKRKEKREREKKEERE

Dear

This is in response to your request 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.

; 201134025

Taxpayer represents that on *HEEAHANEEAETAREIE® HE received distributions of Amount 1
and Amount 2 from his individual retirement accounts (“IRA A” and “IRA B”
respectively) from Financial Institution A. Taxpayer asserts that his purpose in
taking the distributions was to roll the funds over into an IRA annuity with Financial
Institution B. Taxpayer asserts that his failure to accomplish a rollover within the 60-
day period prescribed by section 408(d)(3) was due to unlawful and fraudulent
actions of Taxpayer's financial advisor. Taxpayer further represents that neither
Amount 1 nor Amount 2 has been used for any purpose.

Taxpayer represents that he received a distribution from IRA A of Amount 1 and
from IRA B, Amount 2, in order to roll the funds into an IRA annuity (“IRA C”) with
Financial Institution B. Upon receiving the two distributions, Taxpayer deposited the
funds into Account A with Financial Institution C for a short time before moving
Amount 3 into what he believed was IRA C with Financial Institution B. The following
year, Financial Institution B notified Taxpayer that his financial advisor had lost her
registration with Financial Institution B. Taxpayer then learned that his financial
advisor had deposited Amount 3 into her own personal account, and not into IRA C.
Taxpayer also learned that the statements over the past year purported to have
come from IRA C with Financial Institution B were forgeries. Taxpayer has filed
complaints with relevant local and federal authorities.

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 3 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)).

3 201134025

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.

Taxpayer represents that Financial Institution B is willing to issue Taxpayer an IRA
annuity no greater than Amount 3.

The information presented and documentation submitted by Taxpayer is consistent
with his assertion that his failure to accomplish a timely rollover was caused by the
fraudulent and illegal actions of his financial advisor.

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 and Amount 2 from IRA A
and IRA B, respectively. Taxpayer is granted a period of 60 days from the issuance
of this ruling letter to contribute Amount 3 into an eligible retirement plan or to have
Amount 3 converted into a qualified IRA annuity. 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 3 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.

4 201134025

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

HEKKKKEKKEKEKR KR KE

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group. 1