PLR 201208040: IRS waives the 60-day IRA rollover deadline after a financial advisor's deposit error

Plain-English summary

An 84-year-old taxpayer received a distribution from an IRA and intended to roll the amount into another IRA. A financial advisor's office mistakenly deposited the amount into a non-IRA trust account, so the taxpayer missed the 60-day rollover deadline. The IRS waived that deadline under IRC § 408(d)(3)(I) because the documentation supported the financial institution error and the amount had not been used for another purpose. The taxpayer was given 60 days from the ruling letter's issuance to contribute the amount to a rollover IRA, subject to the other rollover requirements. The ruling did not authorize a rollover of amounts required to be distributed under IRC § 408(a)(6).

Ruling snapshot

• Question: Can the IRS waive the 60-day IRA rollover requirement when an advisor's office deposits the distribution into a taxable account by mistake?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), and 408(a)(6); Rev. Proc. 2003-16

Full text (IRS public release)

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

TAX EXEMPT AND NOV 3 0 2011

GOVERNMENT ENTITIES
DIVISION

201208040

Uniform Issue List: 408.03-00

TEP RAT I

Legend:
Taxpayer A =

IRA X =

IRA Y =

Trust Z =

Amount A =

Company A =

Company B =

Financial Advisor C =

Date A =

Date B =

Date C =

Dear :

This is in response to your request for a ruling, dated May 12, 2011, as supplemented by correspondence dated August 18 and November 10, 2011, submitted on your behalf by your authorized representative, 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 84, represents that on Date B she received a distribution from IRA X, an individual retirement account, totaling Amount A. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) was due to financial institution error. Taxpayer A further represents that Amount A has not been used for any other purpose.

Taxpayer A maintained IRA X and other accounts with Company A. In May 20: upon the sale of Company A, Taxpayer A’s accountant referred her to Financial Advisor C to help with determining how to manage these accounts. Financial Advisor C opened IRA Y and Trust Z (a non-IRA account) for Taxpayer A in Company B.

On Date A, Taxpayer A gave Financial Advisor C a check for certain non-IRA funds. These funds were deposited in Trust Z, a non-IRA account. About one week later on Date B, Taxpayer A gave Financial Advisor C a check for Amount A drawn upon IRA X. Taxpayer A represents that she intended Amount A to be deposited into IRA Y. However, Financial Advisor C’s office mistakenly deposited Amount A into Trust Z instead of into IRA Y. Financial Advisor C has provided a letter confirming the mistake.

Taxpayer A received a Form 1099-R which reported the distribution from IRA X as a taxable distribution. However, Taxpayer A represents that, because of her age, she did not fully understand that she had to report this amount as income on her 20 tax return until she received a notice of additional tax liability, including interest and penalties, from the Internal Revenue Service (the “Service”) on Date C, more than two years after the distribution of Amount A. Her accountant then made her aware of the tax consequences of the original IRA distribution, and this request was filed with the Service for a waiver of the 60-day rollover period with respect to Amount A.

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

201208040

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

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(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.

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The information presented and documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover was caused by Financial Advisor C’s office mistakenly depositing Amount A into her taxable account rather than into IRA Y.

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 A from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount A into a Rollover IRA. 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 A 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.

A copy of this letter ruling is being sent to your authorized representative pursuant to a power of attorney on file in this office.

If you wish to inquire about this ruling, please contact

(I.D. # ), , at ( ).

Sincerely yours,

Manager

Employee Plans Technical Group 1

Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose

cc: