PLR 1242025: IRS waives the 60-day rollover deadline after a bank error

Plain-English summary

The IRS waived the 60-day rollover requirement for a taxpayer who received a deceased spouse's IRA distribution and intended to roll it into her own IRA. She delivered the check to a financial institution within the deadline, but the institution deposited the money into a non-IRA account instead of completing the rollover. After the error was discovered, she transferred the distribution and associated earnings to an IRA. The IRS treated the distribution amount as a rollover contribution under IRC § 408(d)(3), provided the other rollover requirements were met, but treated the associated earnings as an IRA contribution subject to the applicable rules and limits.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement after the taxpayer relied on a financial institution that failed to complete the rollover?
• Outcome: Approved
• Key authorities: IRC §§ 408(a)(1), 408(a)(6), 408(d)(3), and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224 201242025

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUL 26 2012

Uniform Issue List: 408.03-00

T.E.P.R.A. T1

Legend:
Taxpayer A =
Individual B =

IRA Annuity C =

Financial Institution D =

Account E =

Financial Institution F =
IRA G =
Financial Institution H =
Amount 1 =

Amount 2 =

Dear:

This letter is in response to a request for a letter ruling dated July 25, 2011, as
supplemented by correspondence dated December 15 and 20, 2011, and July
17, 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:

2 201242025

Taxpayer A, age 68, at the time of the distribution of Amount 1 from IRA Annuity
C, asserts that her failure to accomplish a rollover of Amount 1 within the 60-day
period prescribed by section 408(d)(3) was due to her reliance on Financial
Institution F to help her complete the rollover. Taxpayer A represents that
Amount 1 has not been used for any purpose.

Taxpayer A was married to Individual B. Individual B maintained IRA Annuity C,
an individual retirement arrangement (IRA) under section 408 of the Code, with
Financial Institution D. Prior to his death on June 24, 2010, after a long illness
with cancer, Individual B had handled all financial matters for himself and
Taxpayer A. Following her husband's death, Taxpayer A received a distribution
in the form of a check, dated July 9, 2010, for Amount 1, representing a death
benefit of IRA Annuity C. Taxpayer A represents that she wanted to transfer
Amount 1 to her own IRA.

On July 19, 2010, Taxpayer A took the check for Amount 1 to Financial Institution
F and asked that it be deposited into an IRA in her name with both her daughters
listed as beneficiaries. Taxpayer A did not ascertain whether the rollover to an
IRA had occurred. However, it appeared to Taxpayer A from the monthly bank
statements she received that an IRA had been opened as instructed because the
account was titled in Taxpayer A's name to be held in trust for her two daughters.
Being under great stress in the weeks following her husband's death and being
unfamiliar in such financial matters, Taxpayer A relied on Financial Institution F to
assist her in executing a spousal rollover to an IRA. Taxpayer A represented that
an employee of Financial Institution F prepared the necessary paperwork for this
transaction. In April of 2011 when Taxpayer A met with her tax preparer, he
informed her that Amount 1 had been deposited into Account E, a non-IRA
account with Financial Institution F instead of into an IRA. On April 21, 2011,
Taxpayer A transferred Amount 1 from Account E to IRA G with Financial
Institution H. Associated earnings of Amount 2 were transferred on April 25,
2011, from Account E to IRA G with Financial Institution H.

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 1.

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 -

(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) 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)(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) of the Code.

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 sections 408(d)(3)(I) and 402(c)(3)(B) 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 1 was due to her reliance on Financial Institution F to complete the
rollover.

4 201242025

Therefore, pursuant to section 408(d)(3)(I), the Service hereby waives the
60-day rollover requirement with respect to the distribution of Amount 1 from
IRA Annuity C. Taxpayer A has transferred Amount 1 and the earnings thereon
(Amount 2) from non-IRA Account E to IRA G. Provided all other requirements
of section 408(d)(3) of the Code, except the 60-day requirement, are met with
respect to the contribution of Amount 1, then Amount 1 will be considered a
rollover contribution within the meaning of section 408(d)(3) of the Code. The
transfer, however, of Amount 2 (representing earnings on Amount 1) from non-
IRA Account E into IRA G is not considered a rollover contribution within the
meaning of section 408(d)(3) of the Code, but is an IRA contribution under
section 408(a)(1) of the Code, subject to the rules and limits that pertain thereto.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 408(a)(6) 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 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: