PLR 1226037: IRS waives the 60-day rollover deadline after a financial institution error

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer who intended to roll a retirement-plan distribution into an IRA. The taxpayer followed instructions from a financial institution, but the institution opened a non-IRA account and deposited the distribution there. The IRS granted 60 days from the ruling letter to contribute the amount to a rollover IRA, provided the other requirements of § 402(c)(3) were met. The ruling relied on the financial institution's error and did not address the transaction under other Code provisions.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day rollover requirement after the distribution was deposited into a non-IRA account because of a financial institution error?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(31), 402(c), 6110; Treas. Reg. § 1.401(a)(31)-1; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE 201226037

WASHINGTON, D.C. 20224

GOVERNMENT ENTITIES APR 03 2012

TEP RA T2

Uniform Issue List: 402.00-00

XXXXXXXXXXXXXX

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Legend:

Taxpayer A = XXXXXXXXXXXXXX
Plan B = XXXXXXXXXXXXXX
Financial Institution C = XXXXXXXXXXXXXX
Company D = XXXXXXXXXXXXXX
Financial Institution E = XXXXXXXXXXXXXX
Account F = XXXXXXXXXXXXXX
Amount 1 = XXXXXXXXXXXXXX
Date 1 = XXXXXXXXXXXXXX
Dear XXXXXXXXXXXXXX:

This letter is in response to your request dated June 3, 2011, 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:

Taxpayer A, age 56, represents that she received a distribution from Plan B
totaling Amount 1. Taxpayer A asserts that her failure to accomplish a rollover of
Amount 1 within the 60-day period prescribed by section 402(c)(3) was due to the
failure of Financial Institution C to follow Taxpayer A’s instructions. Taxpayer A also
represents that Amount 1 has not been used for any other purpose.

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Taxpayer A represents that she was employed by Company D and participated in
Plan B, which was administered by Financial Institution E. Plan B was terminated on
Date 1. On March 28, 2009, Taxpayer A telephoned Financial Institution C for
instructions on how to complete a direct rollover to an IRA. Based on verbal instructions
from a representative of Financial Institution C, Taxpayer A opened a new account,
intending it to be an IRA. Due to the incorrect instructions received from a
representative of Financial Institution C, the account created was a non-IRA account.
Financial Institution C issued an account number which Taxpayer A used, on the same
day, to complete the required Contract Termination Withdrawal form specifying that she
had chosen the direct rollover option and would be rolling the distribution to her new IRA
at Financial Institution C. Taxpayer A requested a check made payable to “Financial
Institution C FBO Taxpayer A” with the new account number. On June 24, 2009, a
distribution check in Amount 1 was mailed to Taxpayer A and on June 30, 2009,
Taxpayer A mailed the check to Financial Institution C with instructions to deposit the
check in her “individual rollover account”. However, Financial Institution C deposited
the funds in the non-IRA account. The mistake was discovered in early 2011 when
Taxpayer A sought financial advice and a reallocation of her investments.
Documentation submitted includes a letter from Financial Institution C recognizing the
mistake and agreeing to reimburse the costs relating to the application for a waiver of
the 60-day period.

Based on the foregoing 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 1 from Plan B.

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 distributed, then
such distribution (to the extent transferred) shall not be includible 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 sections 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.

Section 401(a)(31) provides the rules for governing “direct transfers of eligible
rollover distributions”.

201226037

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Page 3

Section 1.401(a)(31)-1, of the Income Tax Regulations (Regulations) Q&A-15,
provides, in relevant part, that an eligible rollover distribution that is paid to an eligible
retirement plan in a direct rollover is a distribution and rollover, and not a transfer of
assets and liabilities.

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 timely rollover was due to the
failure of Financial Institution C to follow her instructions to deposit Amount 1 in an IRA,
which resulted in Amount 1 being deposited into Account F, a non-IRA account.

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 1 from
Plan B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter
to contribute Amount 1 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, the contribution of Amount 1 into an IRA will be considered a valid 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.

XXXXXXXXXXXXXX 201226037

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A copy of this letter 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 XXXXXXXXXXXXXX (ID
XXXXXXXXXXXXXX) at (XXX) XXX-XXXX. Please address all correspondence to
SE: T:EP:RA:T1.

Sincerely,
Carlton Watkins, Manager
Employee Plans Technical Group 1

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