PLR 1236034: IRS waives the 60-day rollover deadline after a financial institution's error

Plain-English summary

The IRS waived the 60-day rollover deadline after a financial institution mistakenly deposited an IRA annuity distribution into a non-IRA account. The taxpayer had instructed the institution to use the funds to open an IRA, but a branch operational error placed the deposit into the wrong account. The mistake was discovered after the rollover period had expired. The IRS gave the taxpayer 60 days from the ruling date to contribute the distributed amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the taxpayer receive a waiver of the 60-day IRA rollover deadline after a financial institution deposited the funds into a non-IRA account by mistake?
• Outcome: Approved, 60-day rollover requirement waived
• Key authorities: IRC §§ 72, 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 201236034

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 13 2012

Uniform Issue List: 408.03-00

SE:T:EP:RA:T1

Legend

Taxpayer A =
IRA Annuity B =
Account C =
Amount D =
Amount E =
Company L =
Company M =

Dear :

In a letter dated September 4, 2011, as supplemented by correspondence dated
April 17, 2012, you requested, through your authorized representative, 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 were submitted under penalty of perjury
in support of your request for a waiver.

Taxpayer A represents that she received a total distribution of Amount D from
IRA Annuity B, an individual retirement annuity within the meaning of section
408(b) of the Code, which was issued by Company L. Taxpayer A asserts that
her failure to accomplish a rollover within the 60-day period prescribed by section
408(d)(3)(A) was due to an operational error by Company M in failing to establish
an IRA as per Taxpayer A’s instructions.

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Taxpayer A is over the age of 70 ½. On February 2, 2010, Taxpayer A
surrendered IRA Annuity B and Amount D was wired to her bank account. On
February 12, 2010, Taxpayer A wrote a check equal to Amount E and deposited
it with Company M with the instruction that Amount E be used to open an IRA.
However, due to a branch operational error, Amount E was deposited into
Account C, a non-IRA account. Taxpayer A provided a letter from Company M
explaining that it had mistakenly deposited the proceeds from IRA Annuity B into
Account C. The mistake was discovered while preparing Taxpayer A’s tax return
for 2010, which was after the expiration of the 60-day period rollover period.

Amount E is an amount greater than Amount D. Taxpayer A asserts that the
additional amount was used to round Amount D up to Amount E and may have
come from a distribution from another IRA. However, Taxpayer A was unable to
obtain any supporting documentation regarding the difference between the
distribution from IRA Annuity B, Amount D, and Amount E, and therefore
requests consideration only of Amount D.

Based on the above facts and representations, you request that the Internal
Revenue Service (the “Service”) waive the 60-day rollover requirement with
respect to the rollover of Amount D from IRA Annuity B.

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.

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) 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 or 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).

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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 of the Treasury may
waive the 60-day requirement under section 408(d)(3)(A) and (D) 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, 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,
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 and documentation submitted by Taxpayer A is consistent with
her assertion that she attempted to roll over Amount D into an IRA within 60 days
from the date of distribution but that Company M mistakenly placed Amount E
into non-IRA Account C. Taxpayer A discovered the mistake after the expiration
of the 60-day period prescribed by section 408(d)(3) of the Code.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the rollover of distribution
Amount D. Taxpayer A is 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 408(d)(3), except the 60-day rollover requirement, are
met with respect to such contribution, Amount D will be considered a rollover
contribution within the meaning of section 408(d)(3).

Please note that, pursuant to section 408(d)(3)(E) of the Code, this ruling does
not authorize the rollover of Code section 401(a)(9) minimum required
distributions.

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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
that may be applicable hereto.

This ruling is directed solely to the taxpayer who requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.

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

If you have any questions regarding this ruling, you may contact

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

cc: