PLR 1306033: IRS waives the 60-day IRA rollover deadline after adviser fraud

Plain-English summary

The IRS considered a taxpayer and spouse who withdrew amounts from two IRAs intending to roll them into new IRAs within 60 days. An investment adviser falsely represented that the rollovers had been completed, and the financial institution accepted responsibility for the delay. The IRS waived the 60-day requirement and gave each person 60 days from the ruling date to contribute the respective amount to a rollover IRA, provided the other rollover rules were met. The ruling does not authorize rollovers of amounts required to be distributed under section 401(a)(9).

Ruling snapshot

• Question: May the IRS waive the 60-day IRA rollover requirement after fraud caused the delay?
• Outcome: Approved
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16

Full text (IRS public release)

201306033

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 1 6 2012

Uniform Issue List: 408.03-00

Legend:

Taxpayer = ****

Spouse = ******

IRA X = *********
******

IRA Y = *********
******

Amount A = **

Amount B = **

Investment Advisor = ***

Financial Institution = *******

Dear *****:

   This is in response to your request dated May 22, 2012, as supplemented by

correspondence dated August 16, 2012, 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 the ruling requested:

Page 2 201306033

   Taxpayer represents that he received a distribution from IRA X totaling Amount

A. Spouse represents that she received a distribution from IRA Y totaling Amount B.
Taxpayer and Spouse assert that their failure to accomplish a rollover within the 60-day
period prescribed by section 408(d)(3) was due to fraud committed by Investment
Advisor. Taxpayer and Spouse further represent that neither Amount A nor Amount B
has been used for any other purpose.

   Taxpayer and Spouse withdrew Amount A and Amount B from their respective

IRAs with the intent to roll those amounts over into new IRAs within 60 days. Within the
60 day period, Spouse contacted Investment Advisor, who worked at that time with
Financial Institution, and who handled all withdrawal and deposit transactions, to request
that he deposit the funds into Taxpayer’s and Spouse’s new IRAs before the expiration
of the 60-day period. Investment Advisor stated that he would do so, and sent a
statement to Taxpayer and Spouse showing that the funds were deposited within that
period. The statement however proved to be fraudulent, and the Investment Advisor had
not actually executed the rollover until after the 60-day period. Financial Institution
provided documentation taking responsibility for the failure to roll over Amount A and
Amount B into the new IRAs within the 60-day period.

   Based on the facts and representations, you request a ruling that the Internal

Revenue Service waive the 60 day rollover requirement contained in section 408(d)(3) of
the Code with respect to the distribution of Amount A and Amount 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 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 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).

201306033

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) 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
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 and

Spouse is consistent with their assertion that their failure to accomplish a timely rollover
was caused by Investment Advisor’s fraudulent actions.

   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 A from
IRA X and Amount B from IRA Y. Taxpayer is granted a period of 60 days from the
issuance of this ruling letter to contribute Amount A into a rollover IRA. Spouse is
granted a period of 60 days from the issuance of this ruling letter to contribute Amount B
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 A and
Amount B will be considered rollover contributions 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.

Page 4

If you wish to inquire about this ruling, please contact *** (ID -*)
at (*) -*_. Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

Donzell Littlejohn, Manager
Employee Plans Technical Group 2

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