PLR 1310050: IRS waives the 60-day rollover deadline after a broker misdirects IRA funds

Plain-English summary

The IRS waived the 60-day deadline for an IRA rollover after a broker deposited the distribution into a non-IRA brokerage account instead of opening the requested rollover IRA. The taxpayer had intended to move the funds to a new IRA, had not used the amount for another purpose, and obtained an acknowledgment from the financial institution that it had failed to place the funds in an IRA. The IRS granted 60 days from the ruling date to contribute the amount to an IRA, subject to the other rollover requirements. The ruling did not authorize a rollover of any amount required to be distributed under IRC § 401(a)(9).

Ruling snapshot

• Question: May the taxpayer complete an IRA rollover after the 60-day deadline when the broker misdirected the funds into a taxable brokerage account?
• Outcome: Approved, the IRS waived the 60-day requirement for the specified distribution.
• Key authorities: IRC §§ 401(a)(9), 408(d)(3), and 6110(k)(3); Rev. Proc. 2003-16

Full text (IRS public release)

TAX EXEMPT

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

AND

GOVERNMENT ENTITIES
DIVISION

DEC 11 2012

201310050

Uniform Issue List: 408.03-00

T:EP:RA:T3

Legend

Taxpayer A:
Amount M:
IRA A:
Financial Institution F:
Financial Institution E:

Dear :

This is in response to your request dated May 10, 2012, as supplemented by
correspondence dated October 12, 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 A maintained an Individual Retirement Annuity (IRA), IRA A, with
Financial Institution F. Taxpayer A asserts that, on November , 20, he
received a distribution of Amount M from IRA A. Taxpayer A asserts that his
failure to accomplish a rollover of Amount M within the 60-day period prescribed
by section 408(d)(3) of the Code was due to the failure of Financial Institution E,
Taxpayer A’s broker and financial advisor, to place the funds in an IRA as
instructed by Taxpayer A. Taxpayer A has not used Amount M for any other
purpose.

Taxpayer A went to the offices of Financial Institution E in November 20__ to
discuss moving IRA A from Financial Institution F to Financial Institution E.

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Taxpayer A discussed in detail how much money he needed to retire, when he
should retire, and how much he needed to add to his retirement accounts.
Taxpayer A, aware of the 60-day rollover requirement, chose to move Amount M
from IRA A to Financial Institution E.

On November , 20, Taxpayer A received a check for Amount M from IRA A
payable to Financial Institution E and brought the check to Financial Institution E
with the understanding, based upon Taxpayer A’s stated intentions, to open a
new IRA rollover account. Instead, Financial Institution E deposited the Amount
M check into a non-IRA account, a single brokerage account, and used it to
purchase mutual funds. Taxpayer A first became aware of the error when
preparing his year 20__ taxes. After Taxpayer A contacted Financial Institution E
about the mistake, Financial Institution E agreed to assist Taxpayer A in
requesting a ruling to resolve the problem.

On March , 20, Financial Institution E sent an email to Taxpayer A
acknowledging that Financial Institution E had failed to place the funds in an IRA.

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 M.

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)).

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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) 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 A is
consistent with his assertion that his failure to accomplish a rollover of Amount M
within the 60-day period prescribed by section 408(d)(3) of the Code was due to
the failure of Financial Institution E, Taxpayer A’s broker and financial advisor, to
deposit Amount M into a new IRA.

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 to
Taxpayer A of Amount M. Taxpayer A is granted a period of 60 days measured
from the date of the issuance of this letter ruling to make a rollover contribution of
Amount M to an IRA (or IRAs) described in Code section 408(a). Provided all
other requirements of Code section 408(d)(3), except the 60-day requirement,

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are met with respect to such IRA contribution, the contribution will be considered
a rollover contribution within the meaning of Code section 408(d)(3).

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 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 have any questions, please contact

SE:T:EP:RA:T:3

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:

Deleted Copy of Ruling Letter
Notice of Intention to Disclose