PLR 1305020: IRS waives the 60-day IRA rollover deadline after an online account mix-up

Plain-English summary

A taxpayer wanted to divide an IRA among several financial institutions. While completing an online application, the taxpayer believed an account was an IRA, but it was actually a non-IRA account. The bank later issued a check for the transferred amount plus earnings when the account's certificate of deposit matured. The taxpayer kept the check and promptly requested relief. The IRS waived the 60-day rollover requirement and gave the taxpayer 60 days from the ruling letter to contribute the amount to a rollover IRA, subject to the other rollover requirements.

Ruling snapshot

• Question: May the IRS waive the 60-day IRA rollover deadline when a taxpayer mistakenly transfers funds to a non-IRA account during an online application?
• Outcome: Approved, the deadline was waived with a 60-day contribution period from the ruling letter.
• Key authorities: IRC §§ 72, 401, 408, and 6110; Rev. Proc. 2003-16

Full text (IRS public release)

201305020

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 05 2012

Uniform Issue List: 408.03-00

T:EP:RA:T1

Legend

Taxpayer A =

IRA B =

IRA C =

IRA D =

Account E =

Amount 1 =

Amount 2 =

Amount 3 =

Bank L =

Bank M =

Bank N =

Bank O =

Dear :

This is in response to your letter dated May 17, 2011, as supplemented by
correspondence dated April 25, 2012, August 7, 2012, and August 21, 2012, in
which you request, through your authorized representative, 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 the ruling requested.

Taxpayer A represents that he withdrew Amount 2 from IRA B maintained with
Bank L. Taxpayer A asserts that his failure to accomplish a rollover within the
60-day period prescribed by section 408(d)(3) was due to confusion regarding
Bank M’s online application. Taxpayer A further represents that Amount 2 has
not been used for any other purpose.

In early 2010, a Certificate of Deposit (“CD”) held in Taxpayer A’s IRA B, equal to
Amount 1, was scheduled to mature. Taxpayer A represents that he wanted to
diversify IRA B by dividing it into three separate IRAs with three different financial
institutions. On February 11, 20 [illegible] Taxpayer A requested a trustee-to-trustee
transfer of Amount 3 from IRA B to IRA C, an IRA account he established with
Bank O for purposes of the transfer. On March 4, 20 [illegible] Taxpayer A requested a
transfer of Amount 3 from IRA B to IRA D, an IRA account he established with
Bank N for purposes of the transfer. On March 4, 20 [illegible] Taxpayer A requested a
transfer of Amount 2 from IRA B to Account E, an account he believed to be an
IRA account, which he established with Bank M for purposes of the transfer.

In order to establish an IRA account online, Bank M requires that a “Personal
Account Application,” as opposed to a business account application, be
completed. The Personal Account Application refers to various investments,
including a Bank M CD and on the same line indicates that the minimum term for
an IRA CD is 12 months. Taxpayer A believed that by selecting a 12-month CD,
he was in fact establishing an IRA account. Taxpayer A requested that Bank L
transfer Amount 2 to this account. A Bank L statement submitted by Taxpayer A
indicates that Bank M wired Amount 2 directly to Bank M.

However, Taxpayer A discovered that Account E was not an IRA when, on March
9, 20 [illegible] the CD held in Account E matured and Bank M issued a check to
Taxpayer A equal to Amount 2 plus earnings. Taxpayer A promptly requested a
waiver from the Internal Revenue Service (the “Service”), and continues to hold
the check issued to him by Bank M.

Based on the above facts and representations, you request a ruling that the
Service waive the 60-day rollover requirement contained in section 408(d)(3) of
the Code with respect to the distribution of Amount 2 from IRA Account B.

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.

Page 3 201305020

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) 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)).

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).

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) 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).

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), 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 are
consistent with his assertion that his failure to accomplish a timely rollover was
caused by confusion regarding Bank M’s online application.

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
2 from IRA B. Taxpayer A is granted a period of 60 days from the issuance of
this ruling letter to contribute Amount 2 into a 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, Amount 2 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 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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling
is being sent to your authorized representative.

If you wish to inquire about this ruling, please contact . Please also
address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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

CC: