PLR 1215015: IRS waives the 60-day rollover requirement after a credit union error

Plain-English summary

A taxpayer received a distribution from an employer retirement plan and instructed a credit union to deposit it into an IRA. The credit union instead deposited the funds into a non-IRA account, preventing a timely rollover. The IRS found that the failure resulted from the credit union's error and waived the 60-day requirement under IRC § 402(c)(3)(B). The taxpayer received 60 days from the ruling date to contribute the specified amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: May the taxpayer receive a waiver of the 60-day rollover requirement for the specified distribution?
• Outcome: Approved, with a new 60-day contribution period
• Key authorities: IRC § 402(c)(3)(B); IRC § 6110(k)(3).

Full text (IRS public release)

201215015

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
U.I.L. 402.08-00 JAN 19 2011
XXXXXXXXXXXXXXXX .
XXXXXXXXXXXXXXXX T. EP. RA: T3
XXXXXXXXXXXXXXXX
Legend:

Taxpayer A = XXXXXXXXXXXXXXXX
Plan X = XXXXXXXXXXXXXXXX
Company K = XXXXXXXXXXXXXXXX
Credit Union B = XXXXXXXXXXXXXXXX
Amount D = XXXXXXXXXXXXXXXX
Amount C = XXXXXXXXXXXXXXXX
Amount E = XXXXXXXXXXXXXXXX
Date 1 =XXXXXXXXXXXXXXXK
Date 2 = XXXXXXXXXXXXXXXX
Date 3 = XXXXXXXXXXXXXXXXX

Dear Xxxxxx:

This is in response to a request dated xxxxxxxxxxXxX, as supplemented by
correspondence dated xxxxxxxxxxxx, submitted on your behalf by your
authorized representative, in which you request a waiver of the 60-day rollover
requirement contained in section 402(c)(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.

201215015

Taxpayer A, age’ represents that she received a distribution from Plan X
totaling Amount E. Taxpayer A asserts that her failure to accomplish a timely
rollover within the 60-day period prescribed by section 402(c)(3) of the Code was
due to Credit Union B’s error in not depositing Amount E into an Individual
Retirement Account (IRA). Taxpayer A intended to rollover Amount E to a
rollover IRA maintained with Credit Union B.

Taxpayer A was previously employed by Company K, and a participant in Plan X.
Taxpayer A was concerned with the investment performance and potential loss
of funds in her account in Plan X and on Date 1 requested a complete distribution
of funds in her account in Plan X. Taxpayer A’s intention was to roll the funds
over into an IRA and place the funds in a conservative investment.

Taxpayer A chose Credit Union B as the financial institution to open an IRA.
Taxpayer A instructed Company K to make the distribution check out directly to
Credit Union B. Company K issued the distribution check in the amount of
Amount E payable to Credit Union B IRA Rollover for the benefit of Taxpayer A
and mailed the check to Taxpayer A.

On Date 2 Taxpayer A presented the distribution check which was made payable
to Credit Union B to the teller at Credit Union B with instructions to deposit the
check in an IRA. However, an error was committed by the teller and Amount E
was deposited into a non-IRA account.

On Date 3 Taxpayer A requested and received a distribution of Amount C from
the IRA into which she thought the teller of Credit Union B had deposited Amount
E. At this point in time Taxpayer A discovered that Amount E had been deposited
into a non-IRA account.

Taxpayer A did every thing necessary to effect the desired rollover to an
IRA within the 60 day rollover period and she believed that the rollover had been

completed.

Documentation submitted by Credit Union B, acknowledges that the breakdown
in its procedures was the source of its error in not making a correct rollover of

Amount E.

Based on the above facts and representations, you request a ruling that the
Internal Revenue Service waive the 60-day rollover requirement with respect to
the distribution of Amount D (Amount E less Amount C).

Section 402(c) of the Code provides that if any portion of the balance to the credit
of an employee in a qualified trust is paid to the employee in an eligible rollover
distribution, and the distributee transfers any portion of the property received in
such distribution to an eligible retirement plan, and in the case of a distribution of
property other than money, the amount so transferred consists of the property

201215015

distributed, then such distribution (to the extent transferred) shall not be included
in gross income for the taxable year in which paid. Section 402(c)(3)(A) states
that such rollover must be accomplished within 60 days following the day on
which the distributee received the property. An individual retirement account
(IRA) constitutes one form of eligible retirement plan.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary
may waive the 60-day requirement under section 402(c) 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 402(c)(3)(B) 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 402(c)(3) of the Code, 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 her assertion that her failure to accomplish a timely rollover of
Amount E was caused by Credit Union B’s error in not depositing Amount E into
a rollover IRA.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of Amount
D (Amount E less Amount C). You are granted a period of 60 days from the
issuance of this ruling letter to contribute Amount D into a rollover IRA. Provided
all other requirements of section 402(c)(3) of the Code, except the 60-day
requirement, are met with respect to such contribution, Amount D will be
considered a rollover contribution within the meaning of section 402(c)(3) 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 is being forwarded to your authorized representative
pursuant to a Power of Attorney on file in this office.

201215015

If you wish to inquire about this ruling, please contact xxXxxxXxXXXXXXXXXXX
SE:T:EP:RA:T3, at xxxxxxxxxXxXxXxXXxx.

Sincerely yours,

[illegible signature]
Laura B. Warshawsky, Manager
D Employee Plans Technical Group 3

Enclosures:

Deleted Copy of letter ruling
Notice of Intention to Disclose

CO: XXXXXXXXX