PLR 201242022: IRS waives the 60-day rollover deadline after a financial institution misdirected a distribution

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer whose financial institution deposited an IRA distribution into the wrong account. The taxpayer had sent instructions that amounts from several accounts be deposited into matching accounts, but part of the traditional IRA distribution was placed in a regular account instead of an IRA. The financial institution acknowledged its error, and the taxpayer represented that the amount not rolled over had not been used for another purpose. The IRS gave the taxpayer 60 days from the ruling date to contribute the amount to the specified IRA or another rollover IRA, subject to the other requirements of IRC § 408(d)(3).

Ruling snapshot

• Question: Could the IRS waive the 60-day IRA rollover deadline when a financial institution failed to follow the taxpayer's written deposit instructions?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), 408(d)(3)(I), and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
201242022

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 27 2012

Uniform Issue List: 408.03-00

T.E.P.R.A. T1

Legend:

Taxpayer A =
IRA B =
Roth IRA C =
Account D =
Financial Institution E =
IRA F =
Roth IRA G =
Account H =
Financial Institution I =
Amount 1 =
Amount 2 =
Amount 3 =
Amount 4 =

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Dear:

This letter is in response to a request for a letter ruling dated February 21, 2012, as supplemented by additional correspondence dated June 25 and 27, 2012, from 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 represents that she took a distribution from IRA B totaling Amount 3. Taxpayer A, age 64 at the time of the distribution, asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was due to an error by Financial Institution I. Taxpayer A further asserts that the part of Amount 3 which was not rolled over to an IRA (Amount 4) has not been used for any other purpose.

Taxpayer A maintained IRA B, a traditional IRA under section 408(a) of the Code, Roth IRA C, a Roth IRA under section 408A and Account D, a regular investment account with Financial Institution E. On November 14, 2008, Taxpayer A requested that IRA B, Roth IRA C and Account D be liquidated. She received checks for Amount 1 from Account D, Amount 2 from Roth IRA C and Amount 3 from IRA B. On November 21, 2008, she mailed the three checks to Financial Institution I. She included written instructions that the three checks be deposited into “like” accounts. Amount 2 was deposited into Roth IRA G as requested by Taxpayer A. However, Amounts 1 and 3 were incorrectly deposited into IRA F and Account H, respectively. Taxpayer had requested that Amount 3 be deposited into a traditional IRA but Amount 1 was instead. As a result Amount 4 was not rolled into an IRA contrary to Taxpayer A’s instructions. Financial Institution I has acknowledged in writing it failed to follow Taxpayer A’s instructions.

Based on the above facts and representations, you request that the Internal Revenue Service (“Service”) waive the 60-day rollover requirement contained in section 408(d)(3) of the Code with respect to the distribution of Amount 4.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d) of the Code, 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 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 -

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(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) of the Code).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) of the Code does not apply to any amount described in section 408(d)(3)(A)(i) of the Code 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) of the Code from an IRA which was not includible in gross income because of the application of section 408(d)(3) of the Code.

Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for partial rollovers.

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) 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 the documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover of Amount 4 was due to an error by Financial Institution I.

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 4 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of

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this letter ruling to contribute no more than Amount 4 to IRA F or another 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, the contribution will be considered a rollover contribution within the meaning of section 408(d)(3).

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 ruling has been 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 (I.D. # ), , at ( ).

Sincerely yours,

Carlton A. Watkins

Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

cc: