PLR 1309022: IRS waives the 60-day IRA rollover deadline after a divorce-related transfer error

Plain-English summary

The IRS considered a taxpayer who received an IRA distribution after a divorce-related transfer was mishandled by a financial institution. The taxpayer had instructed the institution to treat the transfer as a rollover, but it sent a check and treated the amount as taxable, and the taxpayer did not realize the source of the funds until after 60 days. The taxpayer had spent part of the distribution, so the IRS waived the deadline for the remaining amount under IRC § 408(d)(3)(I) and gave her 60 days from the ruling letter to contribute it to a rollover IRA. The ruling also discussed the transfer of an IRA interest to a former spouse under IRC § 408(d)(6), and it did not authorize a rollover of required distributions under IRC § 401(a)(9).

Ruling snapshot

• Question: Can the taxpayer receive a waiver of the 60-day IRA rollover deadline after a financial institution mishandles a divorce-related IRA transfer?
• Outcome: Approved
• Key authorities: IRC §§ 408(d)(3)(A), 408(d)(3)(I), 408(d)(6), and 401(a)(9); IRC § 414(p); Rev. Proc. 2003-16

Full text (IRS public release)

201309022

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

TAX EXEMPT AND DEC 0 4 2012

GOVERNMENT ENTITIES
DIVISION

TEP. RAT @

Uniform Issue List: 408.03-00

Legend:

• kkhkhkk kkk
  Taxpayer =
  IRA x = KERRIER EEEEKREEKEEEKKKKR KKK KKK
  KEKEKKEKAEKEKEEKEKKEKKKKK KKK
  1 H H H —_ KEKKKKEEKKKKKAKKKKAKKK KKK KKK
  Financial Institution A =

KRIKEIKREEEKIEKIEEKEEAKHER

Financial Advisor B

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Amount A

KEKKKEKRKEEKEKEEK

Amount B

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Dear

This is in response to your request dated May 3, 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:

Taxpayer represents that she received a distribution from IRA X totaling Amount
A. Taxpayer asserts that her failure to accomplish a rollover within the 60-day period
prescribed by section 408(d)(3) was due to an error made by Financial Institution A;
Taxpayer further represents that while a small portion of Amount A was used, Amount B
has not been used for any other purpose.

The property settlement agreement pursuant to a decree of divorce from
Taxpayer's former spouse granted her ownership and possession of IRA X, which
previously belonged to her former spouse. To transfer ownership of the account, the

201309022

Page 2

court issued a qualified domestic relations order (which Taxpayer represented meets the
criteria of section 414(p) of the Code) assigning to the Taxpayer the interest in the
account. Taxpayer's attorney then issued a letter of instruction to Financial Institution A
for an internal transfer to Taxpayer. The letter included language indicating that the
Taxpayer intended the transfer to be treated as a rollover. Financial Institution A then
mailed a check to Taxpayer, and treated it as a taxable distribution. This was contrary to
the direction of Taxpayer. Taxpayer subsequently received a check for Amount A.

Taxpayer then consulted Financial Advisor B. Taxpayer presented Financial
Advisor B with the divorce decree and other documents, none of which indicated that
Taxpayer had already received a distribution from IRA X, thus Financial Advisor B was
unaware that Taxpayer had received a distribution from IRA X, thus she did not advise
her to roll over the distribution into an IRA. Taxpayer did not realize that the check she
had received represented the funds from IRA X until after the 60-day rollover period. By
the time Taxpayer realized that the funds she received were from IRA X, she had spent
a portion of the funds, leaving Amount B available for rollover.

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 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).

201309022

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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)(1) 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.

Section 408(d)(6) of the Code states that the transfer of an individual’s interest in
an individual retirement account or an individual retirement annuity to his spouse or
former spouse under a divorce or separation instrument is not to be considered a
taxable transfer made by such individual notwithstanding any other provision of this
subtitle, and such interest at the time of the transfer is to be treated as an individual
retirement account of such spouse, and not of such individual. Thereafter such account
or annuity for purposes of this subtitle is to be treated as maintained for the benefit of
such spouse.

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 is
consistent with her assertion that her failure to accomplish a timely rollover was caused
by the error of Financial Institution A. The documentation provided by Taxpayer
demonstrated Taxpayer’s intent to roll over her interest in IRA X to another IRA, and her
instructions to Financial Institution A to accomplish this rollover. Financial Institution A
did not carry out Taxpayer's instructions, resulting in Taxpayer’s interest in IRA X being
transferred to a nonqualified account.

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 B from
IRA X. Taxpayer 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 B 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.

Page 4
201309022

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.

Page 4

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 * ** (ID *** #)
at () ."""_ Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours,

an she

Donzell Littlejohn, Manager,
Employee Plans Technical Group 2

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