PLR 201311042: IRS waives the 60-day rollover deadline after a plan failed to explain rollover rights

Plain-English summary

The IRS waived the 60-day rollover requirement for a surviving spouse who received a lump-sum distribution from an employer plan. The IRS found that the plan sponsor’s failure to explain the rollover option and related tax consequences caused the missed deadline. The taxpayer received 60 days to contribute the unused portion to a rollover IRA, subject to the other requirements of section 402(c).

Ruling snapshot

• Question: What relief did the IRS grant under the applicable rollover or pension funding rules?
• Outcome: Approved.
• Key authorities: IRC § 402

Full text (IRS public release)

201311042

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 2 6 2012
Uniform Issue List: 402.00-00

+e. 0A, 13

Legend:

Taxpayer A

Decedent

Company C

Amount A

Amount B

Plan X

Dear

This is in response to your request dated May 3, 2012, as supplemented by correspondence dated September 20, 2012, October 15, 2012, and October 19, 2012, in which you request a waiver of the 60-day rollover requirement contained in section 402(c)(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 received a distribution from Plan X totaling Amount A. Taxpayer A asserts that his failure to accomplish a rollover within the 60-day period prescribed by section 402(c)(3) was due to an error by Company C in failing to inform Taxpayer A of his ability to roll over Amount A to an IRA account.

Decedent died on July 27, 2011. Decedent's surviving spouse, Taxpayer A, was the designated beneficiary under Plan X, sponsored by Company C. Taxpayer A received correspondence dated September 1, 2011, from Company C giving Taxpayer A the option of receiving Amount A as a lump sum distribution, or as a monthly annuity amount to be paid over Taxpayer A’s lifetime. Taxpayer A represents that he never

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received instructions for a tax-free rollover to an IRA, nor an explanation of the tax consequences of receiving a lump sum distribution. Taxpayer A further represents that a portion of Amount A was used and that Amount B has not been used for any other purpose.

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

Section 402(c) of the Code provides that if any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution, and the distributee 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, then such distribution (to the extent transferred) shall not be includible in gross income for the taxable year in which paid. Section 402(c)(3)(A) states that such rollover must be accomplished within 60-days following the day on which the distributee received the property. An individual retirement account (IRA) constitutes one form of eligible retirement plan.

Section 402(c)(4) of the Code provides that an eligible rollover distribution shall not include any distribution to the extent such distribution is required under section 401(a)(9).

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary may waive the 60-day requirement under sections 402(c) 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 402(c)(3)(B) of the Code.

Section 401(a)(31) provides the rules for governing “direct transfers of eligible rollover distributions.”

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and Answer-15, provides, in relevant part, that an eligible rollover distribution that is paid to an eligible retirement plan in a direct rollover is a distribution and rollover, and not a transfer of assets and liabilities.

Section 402(f) of the Code provides for 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.

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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 402(c)(3) 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, 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 timely rollover was due to the error of Company C in failing to inform Taxpayer A of his ability to roll over Amount A to an IRA as required by 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 B from Plan X. Taxpayer A 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 402(c)(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 402(c)(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.

If you wish to inquire about this ruling, please contact Please address all correspondence to

SE:T:EP:RA:T3.
Sincerely yours,
Laura B. Warshawsky, Manager,
Employee Plans Technical Group 3
Enclosures:

Deleted copy of ruling letter
Notice of Intention to Disclose