PLR 1243016: IRS waives the 60-day rollover deadline after an advisor's account-number error

Plain-English summary

A taxpayer intended to transfer a distribution from her late husband's profit-sharing plan into an IRA. Her financial adviser entered the account number for a non-IRA account instead, so the distribution was deposited there. The taxpayer discovered the mistake while working with a new adviser and had not used the funds for another purpose. The IRS waived the 60-day rollover requirement under IRC § 402(c)(3)(B) and gave her 60 days from the ruling letter to contribute the amount to an otherwise qualifying IRA.

Ruling snapshot

• Question: May the taxpayer receive a 60-day rollover waiver after an adviser directed the distribution to a non-IRA account by entering the wrong account number?
• Outcome: Approved
• Key authorities: IRC §§ 402(c)(3)(B), 401(a)(31), and 408; Rev. Proc. 2003-16

Full text (IRS public release)

201243016

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

JUL 31 2012

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 402.00-00

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Legend:
Taxpayer A = XXXXXXXXXX
Financial Advisor F = XXXXXXXXXX
Financial Advisor G = XXXXXXXXXX
Individual Q = XXXXXXXXXX
IRA X = XXXXXXXXXX
XXXXXXXXXX
Plan C = XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Account R = XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Account S = XXXXXXXXXX
XXXXXXXXXX
Financial Institution M = XXXXXXXXXX
Financial Institution N = XXXXXXXXXX
Amount B = XXXXXXXXXX
Date 1: = XXXXXXXXXX
Date 2 = XXXXXXXXXX

201243016

XXXXXXXXXX

Page 2 of 4

Date 3 = XXXXXXXXXX
Date 4 = XXXXXXXXXX

Dear XXXXXXXXXX:

This is in response to your request dated August 27, 2010, as
supplemented by additional correspondence dated November 29, 2010,
December 20, 2010, March 23, 2011, May 23, 2011 and July 11, 2011 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 represents that she received a distribution from Plan C
totaling Amount B. Taxpayer A asserts that her failure to accomplish a rollover
within the 60-day period prescribed by section 402(c)(3) of the Code was due to
an error made by Financial Advisor F. Taxpayer A further represents that
Amount B has not been used for any other purpose.

Taxpayer A asserts that following her husband's death, she relied heavily
upon Financial Advisor F, with whom she and her husband had a long-standing
banking relationship, to help manage her financial affairs. In June of 2008,
Taxpayer A and Financial Advisor F discussed her intent to transfer assets from
her late husband's profit sharing plan, Plan C, to her IRA, IRA X, maintained by
Financial Institution M. Financial Advisor F advised Taxpayer A that he would
send her the necessary forms after he reviewed Plan C. Some time thereafter,
Taxpayer A received a form entitled “Authorization to Transfer Funds and/or
Securities to Another Account within the Firm” from Financial Advisor F.
Taxpayer A assumed that the account number on the form was the account
number to IRA X, but in fact the account number for Account R, a non IRA
account was entered on the form.

On Date 1, Taxpayer A executed the form she received from Financial
Advisor F. On Date 2, Amount B was distributed from Plan C to Account R.

On Date 3, Taxpayer A was reviewing her finances with her new financial
advisor, Financial Advisor G, and discovered that Amount B had been transferred
to a non-IRA account instead of to IRA X on Date 2. On Date 4, Taxpayer A
transferred the funds from Account R to Account S, maintained by Financial
Institution N, where the funds currently remain.

XXXXXXXXXX

201243016

Page 3 of 4

Based on the facts and representations, you request a ruling that the
Internal Revenue Service (the “Service”) waive the 60 day rollover requirement in
section 402(c)(3) of the Code with respect to the distribution of Amount 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) of the Code 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)(4) of the Code provides that an eligible rollover distribution
shall not include any distribution to the extent such distribution is required under
section 401(a)(9).

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.”

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and
Answer-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.

XXXXXXXXXX 201243016

Page 4 of 4

The information presented and documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover was
caused by errors made by Financial Advisor F, which resulted in Amount B being
deposited into Account R, 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 B from Plan C. Taxpayer A is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount B into an IRA otherwise
meeting the requirements of section 408 of the Code. Provided all other
requirements of section 402(c)(3) of the Code, except the 60-day requirement,
are met with respect to such contribution, Amount B will be considered a rollover
contribution within the meaning of section 402(c)(3) of the Code.

This ruling does not authorize the rollover of amounts that are required to
be distributed by section 401(a)(9) 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.

If you wish to inquire about this ruling, please contact XXXXXXXXXX (ID
XXXXXXXXXX) at () -****. Please address all correspondence to XXXXXXXXXX.

Sincerely yours,

Donzel Littlejohn, Manager,
Employee Plans Technical Group 2

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

CC: XXXXXXXXXX, Power of Attorney