PLR 201308037: IRS waived the 60-day rollover deadline for part of a pension distribution

Plain-English summary

The IRS considered a taxpayer's request to roll part of a pension distribution into an IRA after the 60-day deadline. The plan had not provided the written rollover notice required by section 402(f), and the taxpayer had kept the remaining amount in a money market account. The IRS waived the deadline for that amount and allowed 60 days from the ruling letter's issuance to contribute it to an IRA. The ruling did not authorize a rollover of minimum required distributions under section 401(a)(9).

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement for the retained part of the pension distribution?
• Outcome: approved
• Key authorities: IRC §§ 402(c), 402(f), and 401(a)(9); Rev. Proc. 2003-16

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

TAX EXEMPT AND NOV 2 7 2012

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 402.00-00 TEP RAT 4

Legend

Taxpayer A =
Plan B =
Account C =
Bank D =

Amount 1 =

Amount 2

Amount 3

Dear

This is in response to your request dated June 25, 2011, as supplemented by correspondence received on August 10, 2012, and October 11, 2012, in which you request a waiver of the 60-day rollover requirement contained in section 402(c)(3)(A) 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 received a distribution equal to Amount 1 from Plan B in 20__ . Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) of the Code was due to the failure of Plan B to provide notice as required under section 402(f).

In December of 20__, Taxpayer A contacted Plan B, a defined benefit plan qualified under 401(a), to request a distribution of his pension with a retirement account representative. On December 10, 20 __, the representative cut a check

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for Amount 1, which was Taxpayer A’s life savings net of federal income tax withholding. Within 60 days from the December 10, 20 _, distribution, Taxpayer A used Amount 2 for living expenses and deposited remaining Amount 3 into a money market account with Bank D.

In April, 20, when Taxpayer A met an accountant to prepare his federal income tax return for 20, Taxpayer A was informed that the entire distribution was subject to federal income tax, as well as additional income taxes under section 72(t) of the Code. Taxpayer A’s accountant informed Taxpayer A that he should have been provided with information from Plan B regarding a rollover into an IRA, and advised Taxpayer A to request a waiver of the 60-day rollover period. Taxpayer A submitted documentation showing that Amount 3 remains in his money market account and has not been used for any other purpose. Taxpayer A also submitted documentation indicating that Plan B failed to provide notice under section 402(f) of the Code.

Based on the facts and representations, you request that the Service waive the 60-day rollover requirement contained in section 402(c)(3)(A) of the Code with respect to the distribution of Amount 3 from Plan B.

Section 402(a)(1) of the Code provides that except as otherwise provided in this section, any amount actually distributed to any distributee by any employees' trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to the distributee, in the taxable year of the distributee in which distributed, in the manner provided under section 72 (relating to annuities).

Section 402(c) of the Code provides rules governing rollovers of amounts from exempt trusts to eligible retirement plans, including IRAs.

Section 402(c)(1) of the Code provides, generally, that if any portion of an eligible rollover distribution from a qualified employees trust is paid to the employee in an eligible rollover distribution and the employee 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, such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.

Section 402(c)(2) of the Code provides that the maximum amount of an eligible rollover distribution to which paragraph (1) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to paragraph (1)).

Section 402(c)(3)(A) of the Code provides, generally, that section 402(c)(1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.

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Section 402(c)(3)(B) of the Code provides that the Secretary may waive the 60- day requirement under subparagraph (A) 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 occur after December 31, 2001, are eligible for the waiver under section 402(c)(3)(B).

Section 402(c)(4) of the Code defines "eligible rollover distribution" as any distribution to an employee of all or a portion of the balance to the credit of an employee in a qualified trust, except that such term shall not include:

(A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made --

(i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee's designated beneficiary, or

(ii) for a specified period of 10 years or more,

(B) any distribution to the extent the distribution is required under section 401(a)(9), and

(C) any distribution which is made upon hardship of the employee.

Section 402(c)(8) of the Code defines eligible retirement plan as (i) an individual retirement account described in section 408(a); (ii) an individual retirement annuity described in section 408(b) (other than endowment contract); (iii) a qualified trust; (iv) an annuity plan described in section 403(a); (v) an eligible deferred compensation plan described in section 457(b) maintained by an eligible employer as described in section 457(e)(1)(A); and (vi) an annuity contract described in section 403(b).

Section 402(f) of the Code requires a written explanation to recipients of distributions eligible for rollover treatment. Section 402(f)(1) provides, in pertinent part, that the plan administrator of any plan shall, within a reasonable period of time before making an eligible rollover distribution, provide a written explanation to the recipient of the provisions under which the recipient may have the distribution directly transferred to an eligible retirement plan and of the provisions under which the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the recipient received the distribution.

Revenue Procedure 2003-16, 2003-4 |.R.B. 359, provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 402(c)(3)(B) 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,

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whether the check was cashed); and (4) the time elapsed since the distribution occurred.

The information provided by Taxpayer A is consistent with Taxpayer A's assertion that his inability to complete a timely rollover of Amount 3 was due to Plan B’s failure to provide proper written notice regarding the rollover rules under section 402(f) of the Code.

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 3 from Plan B. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount 3 to an IRA. Provided all other requirements of section 402(c), except the 60-day requirement, are met with respect to such contribution, the contributed amounts will be considered a rollover contribution within the meaning of section 402(c).

Please note that this ruling does not authorize the rollover of Code section 401(a)(9) minimum required distributions.

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 that may be applicable hereto.

This letter ruling is directed solely 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 have any questions regarding this ruling, you may contact

Sincerely yours,

[illegible]
Carlton A. Watkins, Manager
Employee Plans Technical Group 1

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