PLR 1225021: IRS waives the 60-day IRA rollover requirement after bank advice

Plain-English summary

An IRA owner received a distribution intending to roll it into another IRA, but a bank employee advised him to use an interim non-IRA account and then purchase a life insurance policy. The policy was rescinded, but the funds remained outside an IRA and were later used with additional money to purchase a certificate of deposit. The IRS concluded that the failure to complete the rollover resulted from erroneous bank advice and waived the 60-day requirement under section 408(d)(3)(I), giving the taxpayer 60 days from the ruling letter to contribute the amount to a rollover IRA. The ruling does not express an opinion on whether the IRA otherwise satisfied section 408.

Ruling snapshot

• Question: May the IRS waive the 60-day IRA rollover requirement after erroneous bank advice led the taxpayer to use non-IRA accounts?
• Outcome: Approved
• Key authorities: IRC §§ 72 and 408; Rev. Proc. 2003-16

Full text (IRS public release)

201225021

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

COMMISSIONER

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00

T:EP:RA:T3

Legend

Taxpayer A: ***
IRA X: ***
Amount D: ***
Amount E: ***
Bank F: ***
Bank S: ***
Financial Institution P: ***
Individual B: ***
Individual M: ***
Date 1: ***
Date 2: ***
Date 3: ***
Date 4: ***
Date 5: ***

Date 6: ***

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Dear * * *:

This is in response to your request dated July 27, 2011, as supplemented by
correspondence dated September 26, 2011, October 6, 2011 and October 25,
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 (Code).

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

Taxpayer A, age [redacted], represents that on Date 2, he received a distribution of
Amount D from his Individual Retirement Arrangement (IRA), IRA X, with Bank S.
Taxpayer A asserts that his failure to accomplish a rollover of Amount D within
the 60-day period prescribed by section 408(d)(3) of the Code was due to an
error committed by Individual M of Bank S which resulted in Amount D being
placed in a non-IRA account, where it remains.

Taxpayer A represents that IRA X matured on Date 1. Upon the advice of
Individual M, a financial advisor employed with Bank S, Taxpayer A requested a
distribution of Amount D from IRA X with the intent of rolling Amount D into
another IRA. After receiving the distribution on Date 2, he deposited Amount D
into an interim non-IRA account with Bank F. Following Individual M’s advice, on
Date 3, he purchased a universal life insurance policy (Policy) from Bank S
totaling Amount E. The Policy was also maintained by Bank S. Four days later
Taxpayer A learned of a substantial additional cost for the policy, unrelated to the
change in the tax qualified status of his investment, which was unacceptable to
him. With the assistance of Individual B, an Executive for Bank S, the Policy was
rescinded and Amount E was returned to Taxpayer A on Date 4, which he
deposited into his savings account, a non-IRA account on Date 5. On Date 6,
Taxpayer A used Amount D plus additional funds to purchase a CD with
Financial Institution P.

An affidavit submitted by Individual M and other documentation submitted
indicate that Amount D was erroneously deposited into the series of non-IRA
accounts, because Individual M forgot that Amount D had been distributed from
an IRA and that such error occurred through no fault of Taxpayer A. Taxpayer A
did not learn of the error until he received Form 1099-R for the tax year ending
December 31, [redacted], from Bank S after the 60-day rollover period had expired.

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

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

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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)).

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)(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 section 408(d)(3)(A) 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).

Revenue Procedure 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) 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,

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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 you submitted is consistent with
your assertion that your failure to accomplish a timely rollover was caused by
your reliance on the erroneous advice of Individual B of Bank S.

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
D from IRA X. You are granted a period of 60 days from the issuance of this
letter ruling to contribute Amount D 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 D will be considered a valid
rollover contribution within the meaning of section 408(d)(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 expresses no opinion as to whether
IRA X satisfied the requirements of section 408 of the Code.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling
is being sent to your authorized representative.

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 have any questions, please contact * * * by phone at * * * or fax at * * *.

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose

cc: ***