PLR 201212022: IRS waives the 60-day IRA rollover deadline after a custodian error

Plain-English summary

The IRS waived the 60-day deadline for an older taxpayer to roll an IRA distribution into a rollover IRA. The taxpayer instructed a financial institution to move the funds back into the IRA, but the institution moved client accounts to a new broker and failed to carry out the instruction. The IRS granted 60 days from the ruling letter's issuance for the taxpayer to contribute the amount to a rollover IRA, assuming the other requirements of section 408(d)(3) were met. The ruling does not authorize a rollover of amounts required to be distributed under section 401(a)(9).

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover requirement because a financial institution failed to follow the taxpayer's instruction?
• Outcome: Approved, with a waiver and a new 60-day contribution period.
• Key authorities: IRC §§ 401(a)(9), 408(d)(1), 408(d)(3), and 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224 201212022

DIVISION DEC 27 2011

TAX EXEMPT AND
GOVERNMENT ENTITIES

Uniform Issue List: 408.03-00
I: EP: RA: T3

Legend:

Taxpayer A

IRA X =

Amount A

Date 1 =
Date 2 =

Date 3

Date 4

Financial
Institution B

Individual |
Dear

This is in response to your request dated July 18, 2011, as supplemented by correspondence dated December 9, 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”).

The following facts and representations have been submitted under penalty of perjury in support of the ruling requested.

201212022

Page 2

Taxpayer.A, age 81, represents that he received a distribution from IRA X totaling Amount A. Taxpayer A states that his failure to accomplish a rollover within the 60-day period prescribed by section 408(d) of the Code was due to an error committed by Financial Institution B which led to the placement of Amount A into a non-IRA account. Taxpayer A further asserts that Amount A has not been used for any other purpose.

Taxpayer A represents that on Date 1, he withdrew Amount A from IRA X for a temporary investment opportunity, with the intent to redeposit the funds into IRA X before the 60-day rollover period expired. On Date 2, Taxpayer A instructed Financial Institution B, through a written order, to move Amount A to IRA X. During the 60-day rollover period, Financial Institution B moved all of its client's accounts, including Taxpayer A’s accounts, to a new broker and failed to carry out Taxpayer A’s instructions. Taxpayer A discovered that Amount A had been deposited into a non-IRA account only when he received a Notice from the Internal Revenue Service on Date 3.

On Date 4, Individual |, the Chief Operating Officer of Financial Institution B, provided documentation indicating that Financial Institution B incorrectly deposited Amount A into a non-IRA account.

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

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)).

201212022

Page 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 of Amount A was caused by an error committed by Financial Institution B.

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 letter to contribute Amount A to 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 any amounts that are required to be distributed by section 401(a)(9) of the Code.

a . 201212022

Page 4

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 is being sent to your authorized representative in accordance with Form 2848 on file in this office.

If you wish to inquire about this ruling, please contact at
. Please address all correspondence to SE:T:EP:RA:T3.

Sincerely,

Laura B. Warshawsky, Manager,
Employee Plans Technical Group 3

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose