PLR 1208040: 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”).

201208040

Page 2

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

Page 3

(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.

201208040

Page 4

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: