PLR 1302046: IRS waives the 60-day rollover deadline after an account-titling error

Plain-English summary

A pension-plan participant intended to roll a distribution into an IRA but mistakenly deposited it into a non-IRA account after being misled by the account's title and website information. The funds were not used for another purpose, but the 60-day rollover period expired before the error was discovered. The IRS waived the deadline under section 402(c)(3)(B) and gave the taxpayer 60 days from the ruling date to contribute the amount to an IRA. The ruling did not authorize rollovers of amounts required to be distributed under section 401(a)(9).

Ruling snapshot

• Question: May the IRS waive the 60-day rollover deadline when an account-titling error caused a retirement-plan distribution to land in a non-IRA account?
• Outcome: Approved
• Key authorities: IRC §§ 401, 402, 408, and 6110; Treas. Reg. § 1.401(a)(31)-1; Rev. Proc. 2003-16

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

XXXXXXXXXX
XXXXXXXXXXK
XXXXXXXXXKX
~ Legend:
Taxpayer A =

Financial Institution M =

Plan X =

Account G =

Website B =
Amount S =
Date 1 =
Date 2 =
Date 3 =

Dear XXXXXXXXXX:

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

OCT 19 2012

201302046

Uniform Issue List: 402.00-00

XXXXXXXXXKX

XXXXXXKXXKXK
XXXXXXXXKX

XXXXXKXXXKX
XXXXXXXXXKX

XXXXXXXXXX
XXXXXXXXKX

XXXXXKXXXXX

XXXXXXXKXKXX

TEP: eh. TZ.

This is in response to your request dated February 23, 2012, as
supplemented by correspondence dated July 23, 2012, 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:

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Page 2 of 4

Taxpayer A, under age 59 ½, was a participant in Plan X, her employer's
defined benefit pension plan. Taxpayer A represents that on Date 2 she
requested a distribution of Amount S from Plan X and that her failure to
accomplish a rollover within the 60-day period prescribed by section 402(c)(3) of
the Code was due to confusion over the title of the account she established
through Website B causing an unintended deposit to a non-IRA account.
Taxpayer A further represents that Amount S has not been used for any other
purpose.

On Date 1, Taxpayer A established Account G on Website B (Financial
Institution M’s website) for the purposes of rolling over her account balance in
Plan X to an IRA. Based on information from Website B and the name of the
fund that Account G was invested in, Taxpayer A believed Account G was an
IRA. On Date 2, Taxpayer A completed forms required by Plan X to distribute
Amount S from Plan X and rollover the funds to Account G and checked the box
on the forms indicating she wished to transfer the amounts to an IRA. On Date
2, Amount S was transferred from Plan X to Account G. On Date 3, Taxpayer A
received a notice that Plan X had transferred Amount S to Account G as a
rollover.

Taxpayer A became aware that Account G was not an IRA and that an
improper distribution had occurred in the January immediately following the
rollover when she received the Form 1099-DIV from the Internal Revenue
Service (the “Service”). Upon learning of the improper distribution, Taxpayer A
discussed the situation with Financial Institution M which advised her that
although she could invest in an IRA through the same mutual fund that Account
G was a part of, Account G was not an IRA. They determined that the funds
could not be rolled back into an IRA account because the 60-day rollover period
had passed.

Based upon the above facts and representations, Taxpayer A now
requests that the Service waive the 60-day rollover requirement contained in
section 402(c)(3) of the Code with respect to the distribution of Amount S.

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.

Page 3 of 4

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.

The information presented and documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a rollover of Amount S
within the 60-day period prescribed by section 402(c)(3) of the Code was due to
confusion over the titling of Account G established through Website B causing an
unintended deposit to a non-IRA account. Taxpayer A, as evidenced by her
completed Plan X withdrawal forms, clearly intended to rollover Amount S into an
IRA. Further, the title of Account G could reasonably lead Taxpayer A to believe

it was an IRA.

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 S from Plan X. Taxpayer A is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount S 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,

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‘Page 4 of 4

are met with respect to such contribution, Amount S 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
*) at () -*. Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Des Lobb
Donzell Lifflejonn, Mahager,

Employee Plans Technical Group 2

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