PLR 1246044: IRS waives the 60-day rollover deadline after an inherited IRA account error

Plain-English summary

The IRS waived the 60-day rollover requirement after a custodian failed to title an inherited IRA correctly. The taxpayer had requested transfers from two IRAs into an account that was not identified as an inherited IRA, causing the attempted rollover to fail under the applicable rules. After a successor custodian moved the funds into another IRA, the IRS allowed the taxpayer to withdraw the specified amount from that account and roll it into a new rollover IRA. The relief was subject to the other requirements of IRC § 408(d)(3), and the ruling did not authorize rollovers of amounts required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement after a custodian's account-titling error involving an inherited IRA?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(9), 408(d)(1), 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
201246044

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 21 2012
T:EP:RA:T3

U.I.L. 408.03-00 CT: CP. PATS
XXXXXXXXXXXXXXXXXXKX
XXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX
Legend:
TaxpayerA = XXXXXXXXXXXXXXXXXXXXXX
IRA X = XXXXXXXXXXXXXXXXXXXKXX
IRA Y = XXXXXXXXXXXXXXXXXXXXXX
IRA Z = XXXXXXXXXXXXXXXXXXXXX
IRA ZZ = XXXXXXXXXXXXXXXXXXXXX
AmountA = XXXXXXXXXXXXXXXXXXXXX
AmountB = XXXXXXXXXXXXXXXXXXXX
AmountD = XXXXXXXXXXXXXXXXXXXX
CompanyP = XXXXXXXXXXXXXXXXXXX
CompanyR = XXXXXXXXXXXXXXXX XXX
CompanyN = XXXXXXXXXXXXXXXXXXKX
Date 1 = XXXXXXXXXXXXXXXXXXX

201246044

Date 2 = XXXXXXXXXXXXXXXX
Date 3 = SSSSSSSSSSSSSSSS
Date 4 = SSSSSSSSSSSSSSSS

Year 1 = XXXXXXXXXXXXXXXXX

Dear xxxxxxxXxxXxxXx

This is in response to your letter dated xxxxxxxxxxxx, as supplemented by
correspondence dated xxxxXxXxXXXXXXXXXX, XXXXXXXXXX, ANd XXXXXXXXXXXX,
submitted on your behalf by 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 (the Code).

The following facts and representations have been submitted under penalty of
perjury in support of your request.

Taxpayer A represents that on Date 2, he received a distribution from IRA Y
totaling Amount B and on Date 3, received a distribution from IRA X totaling
Amount A. Taxpayer A asserts that his failure to accomplish a rollover of Amount
D (Amounts A and B) within the 60-day rollover period prescribed by section
408(d)(3) was due to the failure of Company N to properly title IRA Z.

Taxpayer A is a beneficiary of IRA Z, maintained by Company N. Taxpayer A
represents that IRA Z was established on Date 1. Taxpayer A further represents
that Company P was the custodian of IRA Z.

On Date 2 and Date 3, Taxpayer A requested a transfer of funds from IRA X and
IRA Y totaling Amount D into IRA Z. At that time IRA Z was not titled as an
inherited IRA. Consequently, the funds from IRA X and IRA Y were rolled over
into IRA Z because Company N did not recognize the nature of the account due
to the incorrect title. Thus, the transfer of funds from IRA X and IRA Y to IRA Z
resulted in a failed rollover because an inherited IRA is not treated as an IRA for
rollover purposes.

On Date 4, Company N closed its office from which Taxpayer A was serviced
and Company R took over the custodianship of IRA Z. In Year 1, Company R
became aware and advised Taxpayer A that Amount D should not have been
transferred into IRA Z. At that time the funds from IRA X and IRA Y along with
the remaining funds in IRA Z were deposited into IRA ZZ by Company R.

201246044

Documentation from Company N acknowledges that Company N inadvertently
combined the funds from IRA X and IRA Y with IRA Z because it did not title the
account correctly.

Based upon the foregoing facts and representations, you request that the Internal
Revenue Service waive the 60-day rollover requirement contained in section
408(d)(3) of the Code with respect to Amount D.

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 of the Code.

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) 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 received 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 included 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.

201246044

Section 408(d)(3)(E) of the Code provides that the rollover provisions of section
408(d)(3) 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 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 and good
conscience, including casualty, disaster, or other events beyond the reasonable
control of the individual subject to such requirement. Only distributions that occur
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, provides that in determining whether to
grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I),
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, or 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 his assertion that his failure to accomplish a rollover of Amount D
was due to the failure by Company N to properly title IRA Z.

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
D. Taxpayer A is permitted to withdraw Amount D from IRA ZZ in order to rollover
Amount D into a new rollover IRA. Provided all other requirements of Code
section 408(d)(3), except the 60-day requirement, are met with respect to such
contribution, Amount D will be considered a rollover contribution within the
meaning of section 408(d)(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 transactions described
herein under the provisions of any other section of either the Code or regulations,
which may be applicable thereto.

A copy of this letter is being sent to your authorized representative pursuant to a
power of attorney on file in this office.

201246044

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

If you have any questions concerning this ruling, please contact
XXXXXXXXXXXXXXXX, SE: T: EP: RA: T3, at xxxxxxxXxXXXXXXXXXXXXX.

Sincerely yours,

[illegible handwritten signature]
fe Laura B. Warshawsky, Manager
Employee Plans Technical Group 3
Enclosures:
Deleted copy of letter ruling

Notice of Intention to Disclose

Co: XXXXXXXXXXXXXXXX